Xi’s Supply-Side Panacea Has Lost Its Magic
Three reasons why an old solution to rein in industrial excess capacity won’t work again.
Too many and too much.
Photographer: Valeria Mongelli/BloombergMany are worried that China is making way more than the world needs. From electric vehicles to solar panels, plunging prices at home and abroad are igniting a new round of trade wars. Even Beijing is concerned: In a top-level meeting late last month, policymakers pledged to curb “vicious competition” among businesses.
Industrial overcapacity has flared up in recent months. There isn’t enough global demand to absorb all the lithium batteries, solar modules or steel that Chinese factories can produce. But this is happening at the painful expense of corporate profits. More than half of industry supply in solar, EV, steel, and construction machinery isn’t making money, a sharp deterioration from a year earlier, according to Goldman Sachs Group Inc. Even those producing consumer staples are not spared. Fresh milk, for instance, is caught in its longest price slump in 14 years, exacerbating a deflationary gloom that’s enveloping the economy.