Chinese engineers and local employees in Hisense South Africa Industrial Park in Cape Town, South Africa.
Image: Supplied
Over the past decade and more, led by innovation and deep-going reform, China’s economy has maintained steady and sound development. Contributing roughly 30 percent to global economic growth, it has become a key engine of the world economy. Recently, however, there has been some hype about so-called "Excess Capacity" of China, with allegations that China’s trade surplus is disrupting global markets. Such arguments misrepresent the intrinsic logic behind China’s economic growth and high-level opening-up. China is always ready to share development opportunities with all nations, uphold the global free trade system, and advance common prosperity worldwide.
To date, there exists no globally agreed definition of “Excess Capacity”, and major international organisations including the World Trade Organization have not issued an official definition. According to the International Monetary Fund, excess capacity is a complex concept which should be approached from the perspective of macroeconomic scenarios. Economists tend to examine it from macro and micro perspectives. At the macro level, excess capacity is a phenomenon where the production capacity of the whole industry substantially surpasses the total effective market demand. At the micro level, excess capacity refers to a situation where firms' actual output falls short of the optimal level due to monopolistic competition. In reality, economies are no strangers to the state of excess capacity over effective demand driven by fluctuations in economic cycles. The criteria and angles for determining whether excess capacity exists vary greatly across countries and sectors.
Excess capacity is a dynamic phenomenon in the market economy. Capacity supply and demand in the world economy goes through the dynamic cycle of "balance—imbalance—rebalance", without lasting capacity balance. Amid globalisation and technological change, emerging capacity creates new supply while old capacity becomes redundant, which leads to temporary and structural supply-demand imbalance. With adjustments of the market mechanism, supply and demand will converge towards a new equilibrium.
In terms of capacity utilisation, China’s utilisation rate for industrial enterprises above designated size stood at 74.4 % in 2025. High-tech manufacturing and strategic emerging industries posted even fuller utilisation rates. Lower utilisation in certain traditional sectors largely stems from structural adjustment and green transition—a normal part of industrial upgrading. China’s overall performance remains stable and within a reasonable range. Certain countries arbitrarily generalise and impose their self-serving definition of Excess Capacity on others. This runs counter to economic laws and the realities of China’s industrial development.
Claims that "China's inadequate domestic demand gives rise to excess capacity" do not hold water. They crudely equate high exports and a large trade surplus with excess capacity. In reality, trade surplus results from global division of labor and supply and demand pattern. Major manufacturing powers such as the United Kingdom, the United States, Japan and Germany have long run trade surplus. It is also quite common for Germany and Japan to have a current account surplus of over 6% of their GDP. Emerging markets including Indonesia and Vietnam also register persistent surplus, with prominent surplus in selected sectors. For instance, 80% of American chips are for export.
Strong domestic demand has consistently served as the primary engine of China’s growth. From 2013 to 2024, domestic demand on average contributed 93% of the country's economic growth. Between 2013 and 2025, China's total retail sales of consumer goods doubled from RMB23.8 trillion to RMB50.1 trillion. Measured by the World Bank's purchasing power parity conversion factor, China's total retail sales of consumer goods in 2025 was 1.7 times that of the U.S., making China the de facto largest consumer market in the world. China also tops the world in terms of consumption of physical products, with the annual per capita consumption of some industrial products approaching the levels of developed countries. China is therefore not only a major manufacturing powerhouse but also a huge consumer market.
China’s development brings opportunities rather than shocks to the world, and empowerment instead of market displacement. High-quality, affordable Chinese manufactured goods lower the industrialisation threshold for developing countries. Open and inclusive Chinese innovation enables more nations to access cutting-edge technologies. Reliable Chinese supplies strengthen the resilience of global industrial and supply chains.
China’s science and technology cooperation and industrial upgrading help developing countries accelerate their modernisation process. Intermediate and capital goods imported from China by African nations are processed locally, boosting domestic economies and enabling exports to third-party markets. Take Hisense as an example: in South Africa it employs more than 700 local workers with an annual capacity of 1.5 million units, selling products to over 20 African and European countries. This exemplifies providing both fish and fishing skills — fundamentally different from practices of suppressing raw-material prices while dumping high-priced finished goods.
China opens wide its doors to share its vast domestic market with the world. For 17 consecutive years, China has ranked second globally in import volume. It serves as a major export destination for nearly 80 countries and has implemented zero-tariff treatment for 63 countries. It is the world’s first major economy to grant full zero-tariff coverage to all African diplomatic partners and all least-developed countries with diplomatic ties. Since the policy took effect, China’s imports from Africa have grown for ten successive months. Imports from Africa in May and June totalled approximately USD 28.5 billion, marking a 30.8 % year-on-year increase. During the 14th Five-Year Plan period, China’s cumulative imports exceeded RMB 90 trillion. This fully demonstrates that China is not merely the "World Workshop", but also the "World Market". The so-called "China Shock 2.0" is nothing more than a fallacy built on distorted facts.
Against the backdrop of economic globalisation, no economy can thrive in isolation. technological walls, barriers and blockades will only deepen divisions and frictions and further dim global growth prospects. China cannot develop in isolation from the rest of the world, nor can the world as a whole maintain prosperity without China. Faced with heightened uncertainties in the global economy, China will continue to advance high-level opening up, share its development opportunities with the world and deliver benefits to people across the globe.
** Ren Faqiang is the Chinese Consul General in Cape Town.*
*** The views expressed do not necessarily reflect the views of IOL.*
Related Topics:
