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Excess Capacity Problems May Lead China to a Long-term Depression

On July 28, 2013, China Review News published an article on China’s excess capacity problems, where demand for products is less than the potential supply. The overcapacity of China’s industries has spread from traditional industries to emerging industries. In the first quarter of 2013, the capacity of China’s industrial enterprises that was actually utilized was only 78.2 percent. The capacity that has been utilized in some major industries has dropped below 75 percent, for example, building materials (72.5 percent), the railway, shipping, and other transportation equipment manufacturing industry (73.6 percent), and the coal mining industry (74.9 percent). There has been a definite and ongoing surplus in certain industries. In 2012, the overcapacity in China’s steel industry was 21 percent; cement’s overcapacity reached 28 percent; the overcapacity in electrolytic aluminum production reached 35 percent; and the overcapacity in the automobile industry was 12 percent. China’s solar photovoltaic cell production capacity accounts for 60 percent of what is needed for the whole world, but the excess capacity of PV cell production has reached 95 percent.

According to the article, excess capacity problems may lead China to a long-term depression. The article provides several suggestions on how to solve the problem, such as discouraging local governments from making further investments.

Source: China Review News, July 28, 2013