Chinese Overcapacity: Supply-Side Focus

Understand the Chinese overcapacity problem:

• Overcapacity defined: A significant imbalance where supply vastly exceeds demand.
• Root cause: Chinese policy consistently prioritizes stimulating supply.
• System responsiveness: Government ministries, local authorities, and corporations are highly reactive to policy incentives, leading to increased production when supply is stimulated.
• Demand dynamics: Demand is not as responsive to policy stimulus as supply, resulting in a supply-demand imbalance.
• Export absorption: Historically, excess capacity was absorbed through exports, but the scale of Chinese exports has made it a significant global concern.