Capacity to learn key to avoiding old mistakes in China’s new sectors, achieving national goals

While it is no secret that China is troubled by overcapacity in such traditional industries as steel and aluminum, it is unusual to see a US official warning of threat from China’s future overcapacity in emerging sectors like robotics.

The “Made in China 2025” industrial automation plan could be seen as an emerging threat to the US economy, US Commerce Secretary Wilbur Ross told reporters in Hong Kong on Wednesday. He added: “Overcapacity is a big problem already and given the 2025 plan and the subsidies that it contemplates for a number of new industries, one of the worries that one has to have is that that may result in future overcapacity.”

Such concern may be justified to some extent. China’s overcapacity has already spread from traditional industries to emerging ones such as solar power, wind power and new materials. This is due partly to the strong manufacturing base in China. But more importantly, local governments usually make every effort to encourage and support local development of industries that are classified as emerging ones. They believe that doing so will facilitate local economic transformation and upgrading.

Experience has shown that building the same thing over and over has led to nothing but a huge waste of resources and land, harming the long-term development of local economies and enterprises.

A dramatic capacity expansion may also drive down market prices and contribute to vicious competition, exerting a negative impact on exports. So it’s essential to prevent future emerging sectors from falling into the same old trap as traditional ones.

To transform China from a manufacturing giant into a world manufacturing power, the “Made in China 2025” plan, unveiled by the State Council in 2015, aims to promote breakthroughs in 10 key areas including new information technology, numerical control tools, robotics and aerospace equipment.

The plan is indeed ambitious, but without a comprehensive blueprint, overcapacity is inevitable given that so many areas of China have highly similar industrial structures and engage in overlapping investment, with the encouragement of local authorities.

Chinese policymakers should take the global market into account when formulating a detailed plan for emerging sectors. Given the country’s strong manufacturing capacity, it cannot and should not aggravate world competition with overcapacity again.