[Finance] Tsai Ming-Fang Column: China's Overcapacity and Mounting Debt; Procurement Pledges at Straits Forum May Come to Nothing
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Since former US President Trump imposed high tariffs on Chinese imports in 2018, China's economy has faced challenges. Coupled with the spread of the COVID-19 pandemic, China's risk control measures have further impacted its own economy, leading to deflation and overproduction issues. Chinese President Xi Jinping and Premier Li Qiang have both acknowledged that China's economy is facing a problem of "insufficient effective demand." Although China's Consumer Price Index (CPI) year-on-year growth has remained positive this year, its Producer Price Index (PPI) saw a year-on-year decrease of 1.4% in January, and after 40 consecutive months of decline, it turned positive in February. According to the latest official data released by China, the CPI in May increased by 1.2% year-on-year, the same as in April, while the PPI increased by 3.9% year-on-year. Although China's CPI and PPI data have improved compared to the past, the difficulties facing the Chinese economy remain unchanged.
Impact of China's Overproduction on Domestic and International Markets
Firstly, the issue of overproduction in China continues to affect manufacturers' profits. Taking electric vehicles as an example, according to a report by Chinese media outlet National Business Daily, at the "2026 China Automobile Chongqing Forum," NIO Chairman William Li predicted that the decline in domestic car retail sales this year would further widen to over 22%, and one should be psychologically prepared for a 15% to 20% drop for the entire year. Wang Xia, chairman of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products' Automotive Industry Branch, also pointed out, "In the first five months of this year, over 100 new car models were launched concentratedly in China, yet sales contracted. The profit margin for China's auto industry in the first quarter was only 3.2%, a new low." From the statements and statistical data of Chinese auto manufacturers, it is evident that the Chinese electric vehicle market is currently experiencing intense overproduction and price-cutting competition.
Secondly, the issue of low-price competition in China's electric vehicles has also had a significant impact on the European Union market, which has the automotive sector as its main competitive advantage. According to EU statistics, from January to May this year, China's exports to the EU increased significantly by 16.4% compared to the same period in 2025. Facing the problem of a large volume of low-priced Chinese products being exported to the EU market, the EU is also planning to promote the "Industrial Accelerator Act" to restrict certain Chinese products from participating in public procurement and to prohibit Chinese companies from acquiring European companies.
Concurrently, the EU has also proposed an amendment to the "Cybersecurity Act" to restrict Chinese companies from participating in the construction of telecommunications networks and solar energy systems. Regardless of how the EU promotes legislation to restrict low-price competition from Chinese manufacturers, Chinese companies will inevitably face restrictions if they continue to export with "low-price competition."
China's Rapidly Increasing Debt Amidst Insufficient Effective Demand
Furthermore, when the problem of insufficient effective demand in China cannot be resolved in the short term, reduced profits for businesses and decreased consumption will affect the tax revenue of all levels of Chinese government. According to the financial statistics report for May released by the People's Bank of China on June 12, as of the end of May, the balance of Chinese government bonds increased to RMB 100.6 trillion, a 15.1% increase compared to the same period last year.
According to official Chinese data, the balance of Chinese government debt has doubled in the past five years. When a country's economy is in continuous recession, if the government continues to adopt expansionary fiscal and monetary policies, as long as the economy cannot recover, the speed of national debt growth will accelerate. For China, as long as the CCP's intervention in the market economy remains unchanged, such as incorporating sovereignty issues into the enforcement of foreign trade laws, even if the economic recession slows down, China's government revenue will not increase, and the continuous accumulation of debt will be unavoidable.
Reasons Why Procurement of Taiwanese Agricultural and Fishery Products at the "Straits Forum" Cannot Be Realized
Given China's insufficient effective demand and substantial increase in debt, it is foreseeable that even if the Chinese government emphasizes technological self-reliance, domestic consumption and investment, which have the greatest impact on China's economy, are unlikely to grow in the short term. Therefore, what concerns countries most about China currently is low-price dumping, rather than exporting to the Chinese market. Unfortunately, with the significant decrease in demand in the Chinese market, Taiwanese civil groups continue to promote the importance of expanding the Chinese market for Taiwanese agricultural products with the Chinese authorities at the "Straits Forum," raising questions about its rationality.
Finally, since China banned Taiwanese agricultural and fishery products or Chinese tourists from trading with Taiwan, in addition to the continuous economic recession in China, Hong Kong's freedom has also been significantly reduced. Taiwan's chemical, petrochemical, and machinery industries, which originally had a niche in the Chinese market, have also incurred substantial losses, leading to a significant decrease in the market value of these companies.
At this juncture, local governments expecting China to increase its purchase of Taiwanese agricultural and fishery products are merely deceiving farmers and fishermen. If local governments truly cared about local farmers, their school lunches should "use 100% local ingredients." This is the most effective way to support farmers and eliminate concerns about China's economic coercion.
Author: Tsai Ming-Fang, Professor of Economics at Tamkang University
Source Link: https://www.rti.org.tw/news?uid=3&pid=214565
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