Is China about to flood the world with its surplus production? According to Treasury Secretary Janet Yellen, who is visiting China, this is what is about to happen. China has suffered from overproduction problems for decades. Its economy is going through a serious crisis which is reflected, among other things, in very high unemployment, particularly among young people. The areas where Ms. Yellen most fears China’s exports are those where the United States and its allies have dragged their feet: electric cars, batteries and solar panels. In these areas, China largely dominates all other countries. Yellen, who opposes a disconnection of trade between the United States and China, is finding it increasingly difficult to get her message across.
1) What are the causes of overproduction in China?
The causes of overproduction in China lie in the nature of the communist system. Unlike companies in capitalist countries, Chinese companies are not required to be profitable once they reach a certain size. Chinese companies, rather than having their business plans approved by responsible banks, are playing on their crony relationships inside the Chinese Communist Party to obtain new loans and to increase their production. Leaders, who want their careers to advance within the Chinese Communist Party, have every interest in boosting economic activity in their region, even if this activity does not meet real demand. Every year, hundreds of products end up in overproduction.
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2) Why is overproduction more serious now?
The Chinese economy is suffering the repercussions of the end of the rural exodus. This exodus, which accelerated sharply in the early 1980s, is now almost complete. China therefore no longer needs to build new housing en masse. It no longer needs to build as many new bridges, new roads or new airports. Furthermore, Xi Jinping’s disastrous economic management is seriously hurting SMEs. Sectors linked to the rural exodus and private companies are therefore performing less well than before. They are therefore less able to support the economy.
3) Why is Chinese overproduction worrying?
The government is seeking to achieve an annual growth rate of 5%, which is huge given the size of China’s economy and given the problems it faces. The temptation to sell overproduction on world markets is very great. However, while some of these exports will be sold at their fair price, many will be sold at prices below their cost price, which risks hurting non-Chinese companies working in the same field.
Photo AFP
4) What are Chinese officials saying?
Chinese officials maintain that Chinese companies have the right to export and that the United States has always exported its products around the world. They are careful not to explain that in the Chinese case, it is often a question of dumping and that with around 33% of the world’s production of consumer goods, Chinese companies are in a quasi-monopoly situation in several markets.
5) Is the disconnection with China inevitable?
Production conditions in China are not compatible with those in free market countries. In this sense, disconnection is almost inevitable.