Why does China keep expanding industrial capacity and exporting surplus produc… · @PingFu1999 · TwKit

@PingFu1999

Why does China keep expanding industrial capacity and exporting surplus production instead of prioritizing household incomes and domestic consumption? This question follows from Paul Krugman’s discussion of China’s economic imbalances and the prospect of a second “China shock” in 2024. I address it in my new book, State-Led Globalization. My argument is that China’s persistent overcapacity cannot be explained by weak domestic demand alone. It is a structurally reproducible outcome of Party-State Capitalism (PSC). Under PSC, industrial expansion serves multiple objectives: economic development, technological autonomy, supply-chain resilience, strategic competitiveness, employment preservation, and domestic stability. The stability dimension is particularly important. In China’s political system, maintaining stability is a paramount priority. Industrial production sustains labor demand, local employment, fiscal revenues, and financial stability. Closing factories and reducing capacity may improve market efficiency, but they also impose substantial political, social, and institutional costs. This creates an asymmetry: expanding or preserving capacity is institutionally encouraged, while contraction is politically costly. When domestic demand cannot absorb expanding output, exports and overseas investment provide external outlets. The Belt and Road Initiative also helps channel industrial, construction, and financial surpluses abroad, supporting employment and capacity utilization at home. My central argument is that China’s overcapacity is not necessarily a deliberately chosen policy objective. It is a recurring institutional outcome of a system that prioritizes industrial capability, economic security, and stability over short-term market equilibrium. Exporting surplus capacity is therefore not simply a trade strategy. It also helps sustain China’s domestic political-economic system. This is why the problem cannot be fully understood through conventional supply-and-demand economics alone. It requires an institutional political economy explanation. #ChinaEconomy #Overcapacity #StateLedGlobalization #PoliticalEconomy #GlobalTrade

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