Industry News

Wang Kai

It is universally acknowledged that made-in-China products have reshaped global markets. From air conditioners that European households are relying on to cope with scorching summers, to solar panels that enable millions of families to navigate volatile energy prices, to AI components powering the next generation of digital technologies... The ubiquitous presence of Chinese manufacturing could incur closer examination. However, framing its export strength as excess capacity might risk overlooking something more important.

Since the dawn of the Industrial Revolution, the world’s manufacturing centers have never remained static. First was Britain. In 1880, its industrial output accounted for a peak of 22.9% of the world total. Then came the United States, taking up 44.7% of global industrial output by 1953. After World War II, the global industrial landscape shifted to multiple centers. Manufacturing shifted from the U.S. to Europe, then to Japan, then to East Asia. The current three major global manufacturing hubs: North America, Europe, and East Asia, account for 17%, 17%, and 38% respectively of the world's total manufacturing value added.

China’s role as a production hub, in this sense, is a result of participating in international division of labor rather than isolated expansion.

The term “overcapacity” itself, is actually a rather vague and contested one, with no universally accepted definition among international organizations. In market economies, the relationship between supply and demand naturally moves through cycles of adjustment: balance, imbalance, and rebalance. A permanent state of capacity equilibrium has never existed.

Take capacity utilization rate, an indicator often used to measure excess capacity. For developed and rapidly growing economies, the rate usually falls within the 75%–80% range, while in developing countries it generally ranges between 50% and 64%. In 2025, China's industrial capacity utilization rate for enterprises above designated size reached 74.4%, with higher utilization rates observed in high-tech manufacturing, advanced equipment manufacturing, and strategic emerging industries -- much higher than what “overcapacity” requires.

The case of trade surplus

A trade surplus does not necessarily indicate overcapacity.

Throughout history, major manufacturing economies—including Britain, the United States, Japan, and Germany—have maintained long periods of trade surpluses. Germany and Japan, for instance, have frequently recorded current account surpluses exceeding 6% of GDP. Emerging economies have followed similar paths. Indonesia and Mexico have become major surplus economies, while Brazil and Vietnam have maintained trade surpluses for a decade.

At the industry level, global trade specialization is common. Around 80% of U.S. semiconductor production is exported, while roughly two-thirds of Boeing’s commercial aircraft deliveries go to customers outside North America. In 2025, the European Union recorded trade surpluses of $92.2 billion in automobiles, $214.6 billion in pharmaceuticals, and $11.6 billion in cosmetics.

China is also not the sole beneficiary of its export ecosystem. Foreign companies operating in China capture a significant share of the value created. In 2025, foreign-invested enterprises accounted for 27% of China’s exports and 16% of its trade surplus, with their surplus growth and profit growth both outpacing those of domestic enterprises.

Nor is export a result of weak domestic demand. Domestic demand remained the primary driver of China’s economic growth, contributing an average of 93% between 2013 and 2024. Consumption and investment accounted for approximately 55% and 38% respectively.

In fact, China’s import growth is outpacing export in its trade structure. In the first half of this year, China’s imports rose by 22.1%, compared with export growth of 13.4%. The country’s total retail sales of consumer goods increasing from 23.8 trillion yuan in 2013 to 50.1 trillion yuan in 2025, more than doubling over the period. Adjusted for purchasing power parity by the World Bank, China’s retail market in 2025 was equivalent to 1.7 times that of the United States, making it the world’s largest consumer market by purchasing power.

What would countries face without China’s exports?

Imagine a world deprived of China’s large-scale manufacturing supply.

The first impact would be pricier electricity and more volatile energy supply.

Amid prolonged tensions in the Middle East, transition to green energy is no longer a mere climate obligation, but an imperative for survival. Some countries even have to retrogress to coal to meet energy demand. The International Energy Agency (IEA) forecasts a 0.9 TW shortage in renewable energy installation by 2030 to reach climate pledges.

Over the past decade, the average levelized cost of electricity for global wind and solar photovoltaic projects has declined by more than 60% and 80%, respectively, largely due to China’s production capacity, according to the International Renewable Energy Agency (IRENA). Pakistan offers a telling example: Due to the rapid growth of distributed photovoltaics in recent years—installed capacity increasing from less than 1 GW to over 51 GW largely due to imports from China—the country reduced its oil and gas imports by 40% between 2022 and 2024, saving approximately $12 billion in import costs and riding out the impacts of strait closure.

Consumers would also find their daily expenses rising. In the US, continued restrictions on Chinese imports have increased the annual living expenses of a typical middle-class household by $1,200 to $4,700, as alternative suppliers have struggled to fill the gap. The European Central Bank estimates that a 10% increase in EU imports from China in 2026 could reduce overall import prices in the bloc by 1.6%.

Developing economies would face another challenge: losing access to affordable industrial equipment and components needed to climb the manufacturing ladder -- from sewing machines and textile machinery to industrial machine tools. From 2012 to 2024, China exported over $30 billion worth of textile machinery to developing countries, helping Vietnam, Pakistan, Bangladesh, and others become major textile producers and exporters. China also expanded markets for these countries: between 2010 and 2025, China’s imports of labor-intensive goods from other developing and least developed countries increased by 3.5 times and 16 times, respectively.

For developed nations, a big chunk of their multinationals’ profits would be stripped off. In 2025, roughly 27% of made-in-China products for export were made by a total of 82,000 foreign companies in China. According to the U.S.-China Business Council, 92% of surveyed U.S. companies remained profitable in their China operations in 2025. Another survey by the European Union Chamber of Commerce in China found that 75% of European companies believed their production efficiency in China was higher than in any other region globally.