Overcapacity: the economic buzzword fuelling Europe’s clash with China

In a soulless conference room in Brussels in November, officials and experts from around Europe and the United States were locked in a technical debate over a cryptic bit of economic jargon: global non-market overcapacity.

Beneath the geography-free legalese so common in Brussels, China was undoubtedly the subject. The conference, organised by the European Commission, was designed to thrash out solutions to the problem of overcapacity in China’s economy and the second-order effects Europe fears.

Decades of overinvestment and state subsidies in China, weak domestic consumption, an addiction to manufacturing, crashing corporate profits, zombie companies that the state does not let die and a superpower trade war have, the EU believes, created a perfect storm.

China’s industrial overflows must go somewhere, Brussels thinks, probably at a discount, and the only logical destination is Europe.

Governments fear companies that make everything from industrial machinery and chemicals to hydrogen electrolysers and wind turbines will be eaten alive, industries decimated and jobs lost forever. They worry about a wave that could sweep populist parties to power in Europe’s hollowed-out manufacturing heartlands.

They insist that Beijing should worry too, or face a European anti-China backlash similar to the one that has coursed through the United States over the last decade.

“We are seeing a new ‘China shock’ – as China’s economy slows down, Beijing floods global markets with subsidised overcapacity that its own market cannot absorb,” European Commission President Ursula von der Leyen said at the G7 meeting in Canada this week.

Back at the Brussels forum on global non-market overcapacity last year, the discussion was becoming bogged down in terminology – “decreasing profit margins”, “returns on capital”, “underutilised assets” – when an arm shot up in the middle of the room.

  

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