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Prof. Lu Feng: Use Real Effective Demand to Assess Suitability of Capacity

May 09-2024   



When discussing the international market, attention should be paid to both the legitimate rights of Chinese firms to access overseas markets and actual trade constraints engendered by the real environment, said Prof. Lu Feng of the NSD in a recent media interview on overcapacity.

 

In addition to the vast domestic market, the international market provides an even larger space for many tradable goods produced by China’s manufacturers. How overseas markets are utilized bears on parameters for defining domestic redundant capacity, as well as the alleviation and even avoidance of overcapacity risk, said Prof. Lu. He suggested that newly emerging industries and other tradable goods sectors should make all-round efforts to explore the international market and stabilize market presence while fending off trade protection barriers.

 

Overcapacity is a major research topic for Prof. Lu in 2024. In a closed-door governmental symposium in late January, he expounded on the risks of a new-round of overcapacity confronting the global economy and presented a thematic briefing. During an NSD event on March 13, he spoke on the characteristics of current round of overcapacity and their impact on external trade environment and warned that the US and other western countries would pressurize China by making use of relevant agenda on bilateral and multilateral occasions. In roughly the same period, ‘overcapacity’ started to crop up in official documents. In April, a few US officials pointed finger at China’s overcapacity for causing twists in global prices and production modes as well as damages to the interests of American firms and workers. The criticism was refuted by Chinese officials of various ministries.

 

In the interview, Prof. Lu identified several industries that might currently or prospectively be under the risk of overcapacity or structural overcapacity, including internal combustion vehicles, basic petrochemical materials, semiconductors, power cells, and electric cars. He said that the solution largely lies in resorting to the market: a certain level of surplus capacity would lead prices to drop, resulting in lower profits or even losses for firms. Then bankruptcies and mergers and acquisitions would go up, giving rise to a new equilibrium of sort. Prof. Lu also said that relevant government departments can tap the experiences accumulated over the last two to three decades and tailor measures based on current situations.

Prof. Lu Feng: Use Real Effective Demand to Assess Suitability of Capacity

May 09-2024   



When discussing the international market, attention should be paid to both the legitimate rights of Chinese firms to access overseas markets and actual trade constraints engendered by the real environment, said Prof. Lu Feng of the NSD in a recent media interview on overcapacity.

 

In addition to the vast domestic market, the international market provides an even larger space for many tradable goods produced by China’s manufacturers. How overseas markets are utilized bears on parameters for defining domestic redundant capacity, as well as the alleviation and even avoidance of overcapacity risk, said Prof. Lu. He suggested that newly emerging industries and other tradable goods sectors should make all-round efforts to explore the international market and stabilize market presence while fending off trade protection barriers.

 

Overcapacity is a major research topic for Prof. Lu in 2024. In a closed-door governmental symposium in late January, he expounded on the risks of a new-round of overcapacity confronting the global economy and presented a thematic briefing. During an NSD event on March 13, he spoke on the characteristics of current round of overcapacity and their impact on external trade environment and warned that the US and other western countries would pressurize China by making use of relevant agenda on bilateral and multilateral occasions. In roughly the same period, ‘overcapacity’ started to crop up in official documents. In April, a few US officials pointed finger at China’s overcapacity for causing twists in global prices and production modes as well as damages to the interests of American firms and workers. The criticism was refuted by Chinese officials of various ministries.

 

In the interview, Prof. Lu identified several industries that might currently or prospectively be under the risk of overcapacity or structural overcapacity, including internal combustion vehicles, basic petrochemical materials, semiconductors, power cells, and electric cars. He said that the solution largely lies in resorting to the market: a certain level of surplus capacity would lead prices to drop, resulting in lower profits or even losses for firms. Then bankruptcies and mergers and acquisitions would go up, giving rise to a new equilibrium of sort. Prof. Lu also said that relevant government departments can tap the experiences accumulated over the last two to three decades and tailor measures based on current situations.