China has refuted claims that its industrial expansion is creating a global “excess capacity” problem, instead arguing that the rapid development of its modern industries is primarily driven by technological innovation, market demand, and ongoing economic reforms.
In a new policy document titled “China’s Position on the So-called Excess Capacity Issue,” China’s Ministry of Commerce states that the debate surrounding excess capacity requires an objective and global assessment, rather than one based on what it describes as simplistic or protectionist criteria.
The document highlights the historical pattern of global industrial capacity shifting between countries and regions as technology, markets, and the international division of labour evolve.
It says the movement of industrial capacity from one economy to another as a normal aspect of economic globalisation, noting that supply and demand naturally cycle through periods of “balance, imbalance, and rebalance.”
“Excess capacity is a dynamic phenomenon in the market economy,” the document explains, arguing that temporary or structural imbalances emerge as new technologies generate additional production capacity while older industries become less competitive.
China also draws attention to the absence of a universally accepted definition for excess capacity, noting that World Trade Organization agreements contain no specific definition or provisions on the matter. The document further states that capacity utilisation must be assessed in accordance with the economic conditions and industrial structures of individual countries.
It cites China’s industrial capacity utilisation rate at 74.4 per cent in 2025, while noting higher utilisation rates in several technology-intensive sectors. Over the past three years, capacity utilisation averaged 78.9 per cent in general equipment manufacturing, 74.8 per cent in electric machinery and apparatus manufacturing, 73.3 per cent in automobile manufacturing, and 76.9 per cent in computer, communications equipment, and other equipment manufacturing.
The ministry attributes lower utilisation rates in some traditional raw-material industries to structural adjustments and the transition towards greener production. It describes these changes as part of industrial upgrading, rather than evidence of an inherently distorted industrial system.
A central argument in the document is that China’s modern industrial growth is driven by innovation rather than government subsidies.
“China stays committed to an innovation-driven development strategy,” the document asserts, adding that technological innovation has become a major driver of industrial transformation and upgrading.
According to the document, China’s research and development (R&D) expenditure grew by an average of 10 per cent annually during the 14th Five-Year Plan period, making the country the world’s second-largest R&D spender.
The ministry points to the new energy vehicle sector as an example of how sustained investment in R&D has strengthened Chinese manufacturing. Since 2018, it says, the energy density of power batteries has increased by more than 50 per cent, while production costs have fallen by more than 60 per cent.
The document also links China’s industrial performance to the continued deepening of economic reforms.
It states that China has pursued supply-side reforms, including the elimination of outdated production capacity, while improving mechanisms for the market-based allocation of production factors.
“China’s steady, healthy industrial performance relies on continued, deep-going reform,” the document emphasises.
The reforms, it says, have included stronger intellectual property protection, innovation incentives, risk-sharing mechanisms, and investment in infrastructure such as new power grids, computing networks, and next-generation telecommunications systems.
China further argues that its industrial expansion should be viewed as an opportunity for the global economy rather than a threat.
Rejecting what it calls “China shock 2.0,” the document says China’s industrial development provides “market dividends,” “development dividends,” and “innovation dividends” to the rest of the world.
The ministry highlights renewable energy, electric vehicles, batteries, and photovoltaic products as examples, arguing that Chinese manufacturing and technological advances have helped reduce the cost of green technologies globally.
It also states that Chinese products have helped consumers manage living costs, while China’s exports, investment, and industrial partnerships have supported manufacturing development in emerging economies.
The document reveals that more than 50,000 Chinese businesses have been established overseas and that China’s outbound investment has exceeded $3 trillion, with nearly 90 per cent directed towards developing economies.
For China, the ministry concludes, the answer to global industrial imbalances is greater cooperation rather than confrontation.
“All countries should view the so-called capacity ‘controversy’ objectively and dialectically,” the document says, urging economies to focus on cooperation, remove bottlenecks in global supply and demand, and improve the allocation of resources.
China says it remains ready to work with other countries to safeguard free trade, maintain stable global industrial and supply chains, and promote an open international economic environment.
