West’s ‘overcapacity’ story shows economic illiteracy: Mahoney

Understanding China’s Manufacturing Dominance

The Western narrative often misconstrues China’s vast production capacity as “overcapacity”, a misunderstanding rooted in economic illiteracy. China’s manufacturing sector contributes approximately 30 percent to the global manufacturing value-added. This is not reflective of overcapacity, but of competitive capacity. China’s trade surplus in 2025 surpassed $1.2 trillion, equivalent to the GDP of a country like Saudi Arabia, that ranks among the world’s top 20 economies.

China’s Role in Global Supply Chains

It is important to note that nearly half of the gross export value of Chinese exports is foreign value-added. This suggests China’s capacity plays a significant role in integrating global supply chains, rather than displacing them. If the assumption that excess production automatically results in “overcapacity” were valid, then Germany’s constant trade surplus in automobiles and machinery would indicate chronic overcapacity. Such is not the case, as Germany’s capacity, like China’s, serves global demand and does not translate to economic pathology.

China’s Green Technology Industry

Western critics often attribute the price advantages of Chinese green technology products to government subsidies and market distortion. However, the global competitiveness of China’s green technology industries is a result of four key factors: the vast domestic market scale, ongoing infrastructure investment spanning decades, a highly skilled STEM workforce, and intense intra-industry competition. Furthermore, the subsidies provided by China, while substantial, cannot be directly linked to overcapacity.

Innovation at Scale

Contrary to the critics’ narrative, China has successfully converted subsidies into systemic efficiency. The country’s nominal lithium-ion cell capacity had reached approximately 2.2 TWh by the end of 2023, pushing the global average battery pack prices down by 20 percent year-on-year to $115 per kilowatt-hour in 2024. China also filed 20,081 European patent applications in 2024, indicating an emphasis on innovation, not subsidy dependency.

Global Demand for Green Transition

With the International Energy Agency projecting a triple increase in renewable capacity additions by 2030 to meet Paris Agreement targets, China’s wind, solar, and battery capacities are critical. Additionally, China’s capacity has significantly impacted the global energy transition, with Chinese solar module production costs falling by about 90 percent over the past decade.

China’s Role in Global Decarbonization

Chinese production does not crowd out others but plays a synergistic role in lowering global clean energy costs, facilitates faster deployment worldwide, and does not amount to “overcapacity”. Labeling China’s capacity as “overcapacity” could slow down decarbonization efforts and protect less competitive producers, a move that aligns with industrial protectionism and impacts vulnerable countries in the Global South adversely.

Perceived Strategies and Inconsistencies

The discrepancy in how the West treats its own industrial policy versus China’s is evident. Despite all major economies subsidizing their strategic industries, whenever China gains a manufacturing edge, it faces media offensives and policy restrictions. This is a strategy rooted in the “China threat” perception that considers China’s development a danger to the Western-led order.

The “China Shock 2.0” Narrative

Arguments that China’s advancements in renewable energy and AI will cause more disruption than traditional manufacturing displacement are flawed and politically motivated. These critics ignore the fact that China maintained production and trade flows in 2020 while major Western economies crashed, providing essential goods to global markets and mitigating global economic harm. The so-called “China Shock 2.0” replaces engagement with containment, and competition with confrontation, which the world does not need. What is required is cooperation, investment, and recognition of China’s rise as an opportunity for green transition, technological progress, shared prosperity, and a shared future.