Monday, December 28, 2009

The Danger of Overcapacity

While the US frittered away much of the stimulus on throwing money at banks, the Chinese actually created much more capacity. Business Week used to do a good job of understanding real issues. Here the new Bloomberg magazine notes that the extra capacity poses a risk to the West because China will now have to export more, creating a different sort of imbalance.

Roberts, Dexter. 2009. "China's 'Made in China' Problem: The Downside to Beijing's Huge Stimulus is a Glut of Factories and Output That May Spur Trade Frictions." Business Week (21 December): pp. 20-21.
While Beijing's $586 billion stimulus package has helped the mainland navigate the global financial crisis, there's a downside. Fixed asset investment -- money spent on factories, highways, and other big-ticket projects -- soared 40% in the first half and accounted for nearly all of the country's growth.


Anonymous said...

I assume there's no chance that this industrial capacity might ever be used to make products sold to the 1.4 billion Chinese consumers? Or to 1.2 billion Indian consumers?

How sad!

-mike shupp

Anonymous said...


Here are a few more details from Vineet Kohli [11/09, Tata Institute of Social Sciences, Mumbai]:

If the author, and data, is correct, the problem may not be so great as implied by Business Week.