‘Smarter investment needed’: China must fix overcapacity as it eyes new growth

Beijing Urged to Pursue “Smarter Investment” to Address Overcapacity in Traditional Manufacturing and Infrastructure

Beijing should pursue “smarter investment” and refine industrial policies to address overcapacity in traditional manufacturing and infrastructure, as China has been caught in rising trade barriers amid its shift toward tech-driven growth, according to a prominent economist.

Failing to do so would risk China being trapped into years of stagnation, as seen in Japan and Europe over the past decades, according to Peking University economics professor Cao Heping.

He highlighted that overproduction of consumer and industrial goods, as well as overinvestment, are hurting China’s economic health and Beijing needs to find pragmatic patterns to spearhead its technology push, especially new materials and emerging industries, to remain competitive internationally.

Emphasis on Sustainable Development Goals (SDGs)

1. Goal 8: Decent Work and Economic Growth
2. Goal 9: Industry, Innovation, and Infrastructure
3. Goal 12: Responsible Consumption and Production

Smarter Investment and Efficient Government Support Needed

“There needs to be smarter investment in areas where we are seeing overcapacity,” Cao said, adding that the support should be led by publicly-funded institutions.

“When we are at a period of rapid economic structure reform, an efficient government should help adjust opportunity costs and sunk costs for there to be an efficient market,” he added, referring to sunk costs that have already been incurred and cannot be recovered.

China’s economic slowdown is also being dragged further down by sluggish domestic consumption, low confidence from foreign investors and pressure from trade sanctions led by the United States.

China’s Pursuit of New Productive Forces

• China has repeatedly called for new economic engines – which have been termed “new quality productive forces” by Chinese officials- to focus on industries that can yield home-grown innovation and hi-tech development to move the world’s second-largest economy up the global value chain.
• In December, top Chinese leaders called “overcapacity in some industries” a major challenge for 2024 at the annual central economic work conference.
• And Premier Li Qiang repeated the narrative that China’s development model would curb industrial overcapacity and be transformed to one that leads to “high-quality” production during his government work report to the annual “two sessions” last week.

Concerns of Overcapacity in Electric Vehicle (EV) Industry

But industries hailed by Beijing as new growth engines, including electric vehicles (EVs) and related industries such as battery production, have continued to spark questions of overcapacity at home and abroad.

China has, according to estimates by consultancy Automobility, an excess capacity of between 5 million and 10 million vehicles per year.

The EV industry has also increasingly raised concerns and faced pressure from global competitors, with the European Commission having launched an investigation into low-cost Chinese imports last year.

Exploring New Growth Points

China must therefore find new growth points from further developing related industries that would stimulate the development of new technology and industries, including further developing chips as well as technology related to car engines.

Risk of Stagnation

“Developing new materials, new energy and new systems would be the way to fix the overcapacity and bring us to a pragmatic path that would see economic growth,” Cao said.

“Firstly, materials are the foundation to produce everything. Secondly, developing energy is so that the materials can be used. Thirdly, we need to be able to put together new systems and new end-products from production of compartments and small parts. [Overcapacity] has made China unable to further compete with other industrialized countries through traditional large-scale manufacturing industries, because China’s industrial output value has long surpassed even the top 10 countries added all together.”

Cao warned that if China was unable to “bring the economic structure out from the original path”, and allow science and technology to be the leading driver, it risked being faced with years of stagnation.

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 9: Industry, Innovation, and Infrastructure
• SDG 8: Decent Work and Economic Growth
• SDG 12: Responsible Consumption and Production

The article discusses issues related to overcapacity in traditional manufacturing and infrastructure, the need for smarter investment, and the development of new technology and industries. These issues are directly connected to SDG 9, which aims to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. Additionally, the article mentions the impact of overcapacity on economic growth and the need for economic restructuring, which aligns with SDG 8. The concept of responsible consumption and production is also mentioned in relation to finding new growth points and fixing overcapacity, linking to SDG 12.

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 9.2: Promote inclusive and sustainable industrialization
• SDG 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• SDG 12.2: Achieve sustainable management and efficient use of natural resources

The article emphasizes the need for China to pursue smarter investment, refine industrial policies, and focus on new materials and emerging industries to remain competitive internationally. These actions align with the targets under SDG 9.2, which aims to promote inclusive and sustainable industrialization. The mention of economic restructuring, technology development, and fixing overcapacity also relates to SDG 8.2, which focuses on achieving higher levels of economic productivity through diversification, technological upgrading, and innovation. Furthermore, the article highlights the importance of sustainable management and efficient use of resources to address overcapacity, which corresponds to SDG 12.2.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article implies several indicators that can be used to measure progress towards the identified targets:

• Investment in new materials and emerging industries
• Technological advancements and innovation in traditional manufacturing and infrastructure
• Reduction in overcapacity in consumer and industrial goods
• Increase in economic productivity and competitiveness
• Sustainable management and efficient use of natural resources

These indicators can be used to track progress towards achieving the targets under SDGs 9, 8, and 12. By monitoring investments, technological advancements, reduction in overcapacity, economic productivity, and resource management, policymakers and stakeholders can assess the effectiveness of policies and initiatives aimed at addressing the issues discussed in the article.

Table: SDGs, Targets, and Indicators

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Source: scmp.com

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