Excess Capacity in China

A.G. Edwards is warning that excess capacity in China is becoming a serious issue.

Determining the proper level of production is a difficult task in a capitalist economy driven by profits, it is an almost impossible task in a communist / socialist system where decision making is driven by politics instead of economic reality.

"So far, it looks as though these problems of excess capacity are limited to just a few sectors of the Chinese economy. However, if slower activity in those sectors puts a chill on their suppliers and workers, it could develop into a broader hard landing for the Chinese economy. In that case, China's excess capacity problem could have negative impacts even beyond China. For example, excess capacity could tempt Chinese producers to unload their goods at fire-sale prices on the world market. That could have the positive impact of reducing global inflationary pressures, but it could also sharpen current trade disputes and encourage further protectionist moves in the U.S., Europe and beyond."

Timothy Burger
timothyb(at)timothyburger.com