China doubling down on its overcapacity strategy, digging the economy into a deeper hole

This article is concerning, titled:

• China’s Real Economic Crisis – Why Beijing Won’t Give Up on a Failing Model

Here is the link. It’s a long, long piece, but, in summary:

• China’s economy is struggling despite the end of zero-COVID policies, with sluggish GDP growth and sagging consumer confidence.
• The main issue is structural overcapacity in many sectors, resulting from decades of prioritizing industrial production over consumption.
• This overcapacity is causing problems domestically (deflation risks, debt issues) and internationally (trade tensions due to flooding markets with cheap goods).
• The overcapacity stems from China’s economic strategy that incentivizes local governments to invest heavily in priority sectors, often leading to duplicative investments and debt.
• Examples of overcapacity include solar panels, industrial robotics, and AI, where China has built massive production capacity without corresponding demand or innovation.
• Beijing is doubling down on this strategy to achieve technological self-sufficiency, potentially worsening the problem.
• Western countries, particularly the US, are responding with tariffs and their own industrial policies, but this approach has risks.
• The article suggests that instead of isolating China, the West should keep China engaged in the global trading system and use multilateral institutions to negotiate changes.
• It proposes that the US should be open to comprehensive negotiations with China, addressing multiple issues simultaneously, rather than a compartmentalized approach.

The article warns that pushing China towards economic isolation could be counterproductive and potentially destabilizing for global relations.

I can’t see any way this ends well.

This article was written by Eamonn Sheridan at www.forexlive.com.