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EU Chamber of Commerce urges China to reduce overcapacity

The European Union Chamber of Commerce in China has called on the government in Beijing to reduce the pressure caused by overcapacity. The chamber hopes that the government will support demand in the country and thus take the pressure off the tensions in trade between Europe and China, said chamber president Jens Eskelund in Beijing on Wednesday.

"Overcapacity has become a significant problem. And what worries us at the moment is that it seems to be spreading across all sectors." Eskelund cited the automotive industry and the solar sector, where prices have plummeted year after year, as examples.

In Germany, for example, solar manufacturer Meyer Burger halted module production at its plant in Freiberg, Saxony, last week. The Swiss-based company recently announced that it was still preparing to close the factory. One reason for this was the strong competition from cheap solar modules from China.

According to Eskelund, overcapacity is a burden, which basically means that more products are being manufactured than are in demand. In some industries, this puts pressure on profitability, while in other areas it is a question of companies' ability to survive. The problem is not only hurting European companies, but also Chinese companies, he said.

Where the overcapacity comes from

According to a former president of the EU Chamber, the reason for overcapacity in China is that there are no market mechanisms in the People's Republic. According to him, many of the approximately 150,000 state-owned companies and around 140 car companies would have to go bankrupt, but this does not happen because of local subsidies. The problem of too much supply could therefore only be seriously tackled if companies went bankrupt as they would in a market economy.

China's industrial policy also supports manufacturers too much on the supply side and not the consumer side, another ex-president of the chamber said in a panel discussion. "If you want to use subsidies, give them to the consumer. That helps prevent the problems China has got into," he said.

EU companies have more and more concerns

The Chinese overcapacity or the Brussels anti-subsidy investigation against car manufacturers in China have been putting a strain on relations between the two important trading partners for some time. This is also having an impact on the business climate of foreign companies in China. According to a report presented by the EU Chamber on Wednesday, the concerns of EU companies operating in the People's Republic have "increased exponentially" in recent years.

Companies are therefore investing more money than ever before in mitigating risks to their business or in measures to comply with regulations in China. Many of the chamber's approximately 1,800 member companies reported that it has become increasingly difficult to do business in China.

©Keystone/SDA

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