cross-posted from: https://lemmy.sdf.org/post/38298775

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• Massive industrial overcapacity in China – driven by aggressive state subsidies – is pushing down prices and profits, particularly in the auto sector.
• Beijing is trying to rein in «disorderly price competition» by tightening controls and guiding the orderly shutdown of uncompetitive firms.
• Analysts warn of looming bankruptcies, deflationary pressure and potential social unrest, as heavily indebted giants like BYD and Nio come under growing scrutiny.

China’s leadership is struggling to rein in the forces it helped unleash. For years, President Xi Jinping has championed industrial expansion, urging Chinese companies to ramp up output, especially in strategic sectors like solar energy, electric vehicles and battery manufacturing. In the Communist Party’s official terminology, this is known as «high-quality development.»

Local governments, tasked with driving economic policy on the ground, eagerly answered the call – pumping vast subsidies into industrial buildouts. But the result is becoming hard to ignore: Across a range of industries, China is now grappling with massive overcapacity. The glut is driving down prices and eroding profits. In May, industrial earnings dropped 9.1% compared with a year earlier.

Now, the central government is hitting the brakes. Over the past ten days, the state-run People’s Daily has published two commentaries on the issue. One blamed a «volatile external environment and weak domestic demand» for «distorting the market mechanism» across several industries. A «race to the bottom,» it warned, is already underway.

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