In recent months, Chinese overcapacity has been a major topic of discussion – and a source of controversy – among economists and policymakers around the world. While these concerns are not entirely off base, they are excessive and resolvable.
Over the past four decades, as China has shifted from a planned economy characterized by shortages to a market economy oscillating between insufficient aggregate demand and overheating, its government has often sought to eliminate overcapacity whenever it arose. In 2003, for example, a crackdown on overcapacity in the steel industry led to the shutdown of many steel mills.