China's industrial strengths in a changing global economy

Editor's note: Guo Bowei is an associate professor and the executive director of the Center for Research on Global Energy Strategy at Renmin University of China. He Xian is a graduate student at the School of Applied Economics at Renmin University of China. The article reflects the authors' opinions and not necessarily the views of CGTN.

The green, digital and intelligent transformation of industry is reshaping the global division of labor while reigniting debate over so-called "overcapacity." On July 28, China's Ministry of Commerce released "China's Position on the So-called Excess Capacity Issue," outlining its position on the links between excess capacity and industrial subsidies, trade surpluses, economic imbalances and market competition.

At the same time, some Western countries have revived the "China Shock 2.0" narrative, arguing that China's rising exports and competitive prices are evidence of overcapacity. That argument overlooks what is really driving China's industrial competitiveness.

Exports alone do not prove overcapacity

A country producing more than it consumes does not automatically have excess capacity. There is no internationally accepted definition of overcapacity, including under WTO agreements. Economies of scale concentrate production, while trade connects that output with demand elsewhere.

The ministry points to the United States as an example. About 80% of US semiconductor output is exported, yet few argue this alone proves overcapacity. High exports do not necessarily mean supply exceeds effective demand.

Capacity utilization requires context. In 2025, utilization among China's industrial enterprises above designated size reached 74.4%, with even higher rates in high-tech manufacturing, while several US industries, including motor vehicles and parts, operated below 70%. 

Looking only at national averages tells us little. Assessing overcapacity requires industry-level analysis, including demand, efficiency and whether weaker producers can exit the market.

Innovation and industrial ecosystems drive competitiveness

Government support can help new technologies get off the ground, but it does not guarantee long-term industrial leadership. Early subsidies addressed high R&D costs and infrastructure gaps, giving emerging industries room to grow.

China's central government purchase subsidies for new energy vehicles ended in late 2022. Yet in 2025, NEV production and sales both exceeded 16 million units, with electric vehicles accounting for more than half of new car sales. Purchase tax incentives remain in place through 2027, although at reduced levels.

Industrial support is hardly unique in China. The real question is whether those policies are transparent, non-discriminatory and consistent with international rules. The clean vehicle tax credit under the US Inflation Reduction Act was tied to North American assembly and local content requirements, effectively excluding Chinese products. China's purchase tax relief, by comparison, applies to qualifying vehicles produced by both domestic and foreign-invested companies.

Long-term competitiveness comes from turning innovation into affordable products and reliable manufacturing. Since 2018, the energy density of EV batteries has risen by more than 50%, while production costs have fallen by more than 60%. Those gains reflect years of accumulated manufacturing experience, tightly connected supply chains and a large domestic market where companies can test, refine and scale new products. Policy may create initial demand, but sustained improvement ultimately comes from innovation and execution.

Lower costs often lead to lower prices, but low prices alone do not amount to dumping. Under WTO rules, each case must demonstrate that export prices caused material injury before anti-dumping measures can be imposed.

Restrictions can also reshape innovation. Higher barriers often encourage companies to invest more heavily in domestic alternatives and efficiency gains. ASML's chief executive has warned that tighter export controls could speed up China's development of alternative technologies.

Reuters reported that domestically developed immersion deep-ultraviolet (DUV) lithography systems have entered low-volume production. The systems still require large-scale industrial validation, but they represent an important technological milestone. In artificial intelligence, Kimi K3, with 2.8 trillion parameters, is the world's largest open-source model. According to its developers, it delivers roughly 2.5 times more intelligence per unit of computing power than its predecessor.

Governance turns long-term demand into global opportunity

Emerging industries should be judged over the long term, not by short-term fluctuations. Electric vehicles, energy storage and smart manufacturing require years of R&D and investment before demand fully develops. As a result, production capacity often comes online before markets fully mature. That does not mean every expansion is justified. Efficient production can coexist with redundant, low-end capacity.

Reducing local protectionism through a more unified national market can improve competition, while mergers, restructuring and bankruptcy help inefficient firms exit.Government support is increasingly focused on basic research, enabling technologies and infrastructure rather than direct market intervention. Together, these measures encourage stronger firms to grow while allowing weaker ones to leave the market.

This is where the idea of "China Opportunity 2.0" takes shape. The focus is not simply on producing more, but on making the global green transition more affordable. According to the International Renewable Energy Agency, the global weighted average levelized cost of electricity for onshore wind and utility-scale solar PV fell by 70% and 90%, respectively, between 2010 and 2024. No single country can claim credit for these gains, but China's advances in innovation, manufacturing and large-scale production have helped lower the cost of green technologies worldwide.

The opportunity extends beyond exports. Ford's battery plant in Michigan uses technology licensed from CATL with engineering support from the company, bringing Chinese manufacturing expertise into local production.

The Office of the US Trade Representative has launched Section 301 investigations into "structural excess capacity and production" in 16 economies including US allies and emerging markets. The move shows that excess capacity has become a broader trade issue, not one limited to China. But launching an investigation is not the same as proving overcapacity. That still requires careful analysis of supply, demand, efficiency and industrial policy.

Industrial capabilities that improve productivity and lower the cost of the green transition should not be reduced to a "China Shock 2.0" narrative.  They are better understood as part of what is termed as "China Opportunity 2.0." As countries pursue greener growth and more resilient supply chains, the question is not whether China has a role to play, but how that role can contribute to shared global development.