EDITORIAL | China's Overproduction a Symptom of Deeper Economic Woes

Overproduction spurred by government subsidies has saturated China's domestic market. Now it is showing up overseas in the form of cut-rate exports. As a result, China has come under fire from Western nations for distorting market competition.

The Joe Biden administration has quadrupled tariffs on electric vehicles (EVs) made in China. In addition, it has announced that it is slapping punitive tariffs on solar panels, lithium-ion batteries, and certain other products.

Likewise, the European Commission of the European Union is also investigating Chinese-made EVs. It, too stands ready to take countermeasures depending on the outcome of the investigation.

If Western countries and China start imposing tit-for-tat retaliatory tariffs, it could lead to chaos and stagnation in the global economy. Furthermore, an increase in protectionism is undesirable both for the US, which has adopted tough measures, and for China.

*President Xi Jinping (left) and Premier Li Qiang on March 5 in Beijing. (©Kyodo)*

Problems in the Chinese Economy

The basic problem is that the Chinese government under Xi Jinping refuses to address the suspicions of other countries that China uses fundamentally unfair trade practices. It is difficult to believe President Xi's assertion that the "issue of overproduction in China does not exist." As long as he clings to this inflexible contention, dialogue with Western countries will remain impossible. The impasse could well continue for quite some time.

The Xi administration needs to squarely face the structural problems in its own industrial sector. There is also a conspicuous slowdown in the Chinese economy and domestic consumption is languishing. For that reason, it is seeking to use exports to balance the books.

*An employee works on the production line for solar panels at a factory of GCL System Integration Technology in Hefei, Anhui province, China May 16, 2024. (©China Daily via Reuters)*

Seeking Global Fair Trade

There is also the problem of non-transparent subsidies. Even previously, China's compliance with World Trade Organization (WTO) reporting obligations was considered problematic at best. And many observers believe that it has been concealing the actual status of subsidies related to exports.

In the past, the global steel industry was flooded by low-priced exports from Chinese companies receiving government subsidies. If management and employment at foreign companies are being similarly impacted now, then criticism is only to be expected.

Meanwhile, recent measures taken by the Biden administration might reflect political considerations. For example, the desire to promote job creation and take a tough stance on China in the run-up to the November presidential election. This approach of unilaterally imposing additional tariffs was also seen under the Trump administration. Japan itself has had bitter experiences regarding the unilateral imposition of additional tariffs on some of its products, including steel.

Mindful of that point, Japan should work with Europe and the US to rectify China's unfair trade practices. The problem of Chinese overproduction also affects the business of Japanese companies. We must seize any opportunity to press China to correct its mistakes.