More industrial investment doesn’t mean China exports ‘excess capacity’

At a time when we face multiple economic challenges, it's expected that reform and a wave of industrialization will create new growth momentum, but some Westerners have deep misunderstandings of the Chinese economy, as they claim China's increased industrial investment poses a major risk to the global macroeconomic balance. This misunderstanding is not difficult to correct because it is largely based on misconceptions.

China has failed to shift toward a new strategy based on boosting household consumption, so it's betting on increased industrial investment and manufactured exports to stimulate the economy, according to a media report. 

Citing French daily Le Monde commentator Stéphane Lauer, the report claimed China's manufacturing investment may create a crisis of overcapacity, endangering the global economic system and breaking the balance of the status quo. This reflects a biased and distorted judgment about China's economic prospects.

China's increasing industrial investment does not equate to "a crisis of overcapacity." Whether China exports advanced production capacity or excess capacity should be determined by the global market, instead of Western politicians and media outlets. 

Under the premise of free trade, if Chinese industrial products are popular in the global market, then they will represent advanced production capacity. On the contrary, if those goods become unsalable, they can represent excess capacity.

China has made strides in recent years in boosting research and development spending, expanding clean-energy production and using new production technologies. The country has gained a competitive advantage in some technology-intensive industries. It is absurd to say that China is exporting its outdated excess capacity.

Significant investment and growth in the Chinese manufacturing industry is expected to continue in 2024. It is ridiculous to lead people to believe that China must copy the old path of Western modernization, in which many countries relied too much on consumption, and began deindustrialization when their industrialization process was not complete.

Deindustrialization has become a big challenge related to governance, and it is linked to social unrest and economic chaos in parts of the world. 

China cannot afford to fall into the trap of deindustrialization. With a population of 1.4 billion, China requires a mature manufacturing sector to provide quality employment. Chinese enterprises should focus on making breakthroughs in key technologies and promoting industrialization.

According to the report to the 20th National Congress of the Communist Party of China (CPC), China will continue to focus on the real economy in pursuing economic growth, and move the manufacturing sector toward higher-end, smarter and greener production. 

China's rebalancing of its economy from investment-led growth to consumption is likely to accelerate in the coming years, as the country steps up its policy support to increase consumer spending, but, for a long time to come, China's manufacturing sector will still play an important role in the economy.

Undoubtedly, China will export more manufactured products, bringing greater competition in the global market. But this does not mean that China will export excess capacity. On the contrary, more intense competition will encourage global manufacturers to upgrade their technology and sell their products at lower prices, thereby benefiting global consumers with efficient production.

Some Westerners claim that China's increased industrial investment poses a major risk to the global macroeconomic balance, or that China is exporting its excess capacity to the global market. Such erroneous remarks have been used by some Western politicians as an excuse to pursue trade protectionism and crack down on Chinese products and Chinese companies. 

Their real purpose is to exclude China from the global industrial chain and protect Western companies from competition, but that is an almost impossible task. The West should prepare for more intense global manufacturing competition.