China hits back at criticism over excess industrial capacity as more US tariffs loom

HONG KONG (AP) — China pushed back Tuesday against claims of overcapacity in the world’s second largest economy, ahead of the release of results of a U.S. probe on the matter that could result in new tariffs.

Massive capacity in a slew of Chinese industries, from automaking to solar panels, cement and steel manufacturing, among many others, has drawn increasing attention from Beijing’s trading partners in recent years. Although China’s own leaders have made rebalancing the economy a priority, slowing domestic demand has prompted companies to expand into markets overseas. Surging exports pushed China’s trade surplus to a record of nearly $1.2 trillion last year.

China has never sought a large trade surplus, the Ministry of Commerce said in a report titled “China’s Position on the So-called Excess Capacity Issue.” It took aim at recent talk of a “China shock 2.0” due to excess capacity.

“The U.S. and other western countries have come up with the so-called ‘China shock 2.0,’ falsely accusing China’s industrial development of posing threats to western countries’ monopoly,” said the report, alluding to assertions of an earlier shock to trading partners from China’s ascent as a manufacturing power.

“This is not supported by facts and totally untenable,” the report said.

Tuesday’s document echoed remarks by China’s No. 2 official, Premier Li Qiang, at the World Economic Forum’s “Summer Davos” meeting in the northeastern Chinese city of Dalian. Li said that instead of a “China Shock 2.0,” recent trends should be viewed as a “China Opportunity 2.0.”

The U.S. is expected to soon announce findings of an investigation of 16 economies, including China, relating to excess capacity and production in their manufacturing sectors. The probe is widely expected to result in increased tariffs on some countries.

On Friday, the U.S. imposed higher tariffs of 10% to 12.5% on 60 economies, including China, saying they had failed to effectively enforce a ban on goods produced with forced labor. Many countries including China protested that move.

At a press conference Tuesday, Lin Weilong, director of the Commerce Ministry’s policy research office, said the U.S. has no authority to unilaterally determine whether trading partners have excess capacity and impose restrictive measures.

“The U.S. cannot narrowly define production capacity that exceeds domestic demand as excess capacity, and slap it with a surplus label,” Lin told reporters in Beijing.

Earlier this month, the European Union, struggling to rebalance its trade with China, implemented trade measures including protections for its steel industry and restrictions on imports of e-commerce small parcels.

China’s stance on the overcapacity issue will likely “fall on deaf ears,” said Alfredo Montufar-Helu, an expert on China at Ankura, a consultancy.

“Economic conditions in Western markets have made it politically untenable to do nothing in the face of rising Chinese imports, especially in high value added sectors that Western firms used to dominate,” he said.