As one of the biggest manufacturing powers in the world, China sees both chances and challenges from rapid-growing manufacturing industry. Over-capacity is one of the problems mostly bothering Chinese manufacturers.

According to Zhang Zhengping, director of national development and reform commission, capacity utilization rate in steel, cement, electrolytic aluminium, plate glass and hard coke industries are merely 70% to 75%, while those of new industries such as photovoltaic material and draught fan are even lower than 70%.

“For a healthy market, capacity utilization rate should exceed 80%, even reach 85%,” Zhang says.

Over-capacity will lead to not only waste of resources, but also malignant competition. Manufacturers keep producing despite the losses, causing the prevalence of local trade protectionism.

Zhang says current over-capacity is a structural problem, and the key to solve the problem lies in four aspects, which refers to: firstly, improve Chinese manufacturers’ capacity for independent innovation; secondly, digest some spare capacity through merging and reorganization; thirdly, let the outdated capacity gradually disappear during survival of the fittest; and fourthly, encourage domestic manufacturers to explore foreign market through policies.