Development and impacts of overcapacity reduction policy

XU Qiyuan1,2

(1.XU Qiyuan, Research Fellow at Institute of World Economics and Politics, Chinese Academy of Social Sciences)
(2.Distinguished Professor at City University of Macau)

【Abstract】Much headway has been made in China’s supply-side structural reform, especially overcapacity reduction, since 2016, which is highly commendable. Against the macroeconomic backdrop of favorable external demand, China may hopefully make more progress in the reform. Reduction of excessive production capacity is a top priority of the supply-side structural reform and achievement in cutting overcapacity can also be reflected in the improved operation of zombie enterprises, falling leverage levels, declining NPL ratios and increased soundness of the financial system. However, the improvement in the operation of enterprises, mainly SOEs and those in upstream and heavy industries, to a large extent, is a result of redistribution of inter-industrial interests; it has been achieved at the price of rising costs and declining profits of other industries, mainly concerning downstream and non-state enterprises and those in light industries. Such a scenario could mean resource misallocation and, once external demand is disrupted, it would become a great challenge to keep the sustainability of the overcapacity reduction drive. Therefore, although it has made some headway in cutting overcapacity, China should further push other fundamental reforms, including the supply-side structural reform.

【Keywords】 supply-side structural reform; overcapacity reduction policy; industry differentiation;


【Funds】 National Social Science Foundation of China (18VSJ045)

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(Translated by GENG Qingyou)


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This Article


CN: 11-3799/F

Vol , No. 02, Pages 68-81+5-6

March 2018


Article Outline


  • 1 Overview of overcapacity reduction policy
  • 2 Producer price index (PPI) inflation rate quickly rose against the background of overcapacity reduction
  • 3 Against the background of overcapacity reduction, the inflation rate and profit status of industrial segments are significantly differentiated.
  • 4 Weaker industrial investment against the background of overcapacity reduction
  • 5 It is necessary to deepen the supply-side structural reform
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