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David Dodwell

Not a day passes without someone in Europe or the United States complaining about China’s “overproduction” and “China shock 2.0”. The narrative is of a deliberate, subversive Chinese strategy, underpinned by subsidies, to undermine the manufacturing economies of the West and exert economic hegemony worldwide.
Inaccurate as the narrative may be, it is widely accepted and used to justify demands for protection. The larger China’s trade surpluses, the louder the likely clamour from Western industrial lobbies.
Frustrating as it may feel for China’s ferociously competitive manufacturers, ignoring the clamour is likely to be a mistake. China’s export success is undeniable, as is the sense of threat felt across many sectors in Europe and the US.
While China was exporting cheap consumer goods, they were tolerated, even welcomed. But today’s increasingly sophisticated exports, including many indispensable components in even the most sophisticated Western products, constitute a different level of threat. They threaten not just jobs but national pride. Many also claim they are threats to national security.
And this sense of threat can only spread as more Europeans and Americans realise the astonishing range of sectors in which Chinese companies have advanced to the frontiers.
It’s bad enough with solar panels, wind farms, batteries and magnets. Worse still with world-beating electric vehicles, robots, high-speed trains and shipbuilders. Or artificial intelligence companies like DeepSeek and Moonshot AI biting at the heels of frontier US companies. Or the rare earths virtually monopolised by China that are essential to the 21st century’s green and internet-based innovations.


But how many have ever thought about sectors like pharmaceuticals and materials sciences, industrial chemicals, food sciences or biotechnology? Few are aware that China’s chemists make over 60 per cent of the world’s citric acid, essential in most food products, and a significant share of sweeteners, thickeners, preservatives and food colourants.
Few are also aware that China’s pharmacologists account for 30 per cent of global novel drug development. China dominates in active pharmaceutical ingredients and accounts for 41 per cent of pharmaceutical key starting materials for drugs approved for use in the US. Like rare earths, these are largely invisible but absolutely essential.
China’s biotechnology sector is world-leading, particularly in targeted cancer therapies, and researching new therapies for diabetes and obesity. This leadership comes not from subsidies, but from the sad reality that China has the world’s largest elderly population, the largest number of diabetics and around 30 per cent of its youth from six to 18 years old are clinically obese. Beijing’s primary motivation has been to tackle Chinese health problems, not to swamp the world with exports.
Another quirky insight into China’s capacity to shock comes from its massive monkey business: until 2020, when exports stopped because of Covid-19, China had for a decade or more been the world’s largest source of laboratory monkeys. The seven US primate research centres, which used 70,000 monkeys a year in drug testing, neuroscience, reproductive biology and transplant research, used to import around 40,000 from China.
The impact on US pharmaceutical research has been dramatic: fewer (and more expensive) monkeys means less research and fewer new drugs. Instead of exporting the monkeys, China now uses them at home, enabling significant growth in medical research and becoming a world-leading exporter of frontier medical therapies – where there will doubtless soon be complaints of “overproduction”.

China’s relentless export surge is more an accidental consequence of a policy of self-sufficiency and self-reliance. Nevertheless, the further its manufacturers shift from low-value-adding segments of the supply chain into the high-value-adding segments that until recently were the exclusive preserve of manufacturing behemoths in the US and Europe, the louder the clamour for protection from China’s exports.
Industrial policies in countries like Japan, Germany and South Korea have had a similar impact on their export success, but with a few essential differences: they never had China’s massive consumer market nor workforce. Importantly, they did not have China’s pool of scientific talent: China graduates over 1.3 million engineers every year, compared with just 140,000 in the US.
With such massive domestic consumer demand, even a small overshoot in production, if exported, will have a massive impact on global markets.
China’s BYD produced 4.6 million electric vehicles last year and exported over 1 million, or nearly 23 per cent. But Germany manufactured 4.15 million cars last year and exported over 76 per cent. And in Japan, Toyota alone produced 10.5 million cars last year but sold only 14.2 per cent of that in Japan. Which of these are systemic “overproducers”?


A subtext of the charge of Chinese overproduction is, of course, the role of subsidies, a source of contention in international trade for decades. It is true that strategically focused (and usually time-limited) subsidies sit firmly at the heart of China’s industry policies. But these are aimed primarily at lifting the domestic economy.
The more successful China is in lifting the livelihoods of its massive population, the more likely it is that comparatively cheap and increasingly sophisticated Chinese products will attract buyers overseas in large numbers.
Chinese export success is not the direct aim of its fiercely competitive manufacturers but an inevitable by-product, against which tariffs will provide only temporary defence. There is no denying the problem. But sustainable solutions must go beyond knee-jerk protection.


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But while the export surge is an accidental consequence of self-sufficiency and competitive manufacturers, the solution is not protectionism


But while the export surge is an accidental consequence of self-sufficiency and competitive manufacturers, the solution is not protectionism.


China exports

China

China trade

Electric & new energy vehicles

Artificial intelligence (AI)

China manufacturing

Rare earths

Biomedicine: Geopolitics

Biomedicine: Policy

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Inside Out & Outside In

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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Outside In

China’s export success is a by-product of self-reliance

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}But while the export surge is an accidental consequence of self-sufficiency and competitive manufacturers, the solution is not protectionism

But while the export surge is an accidental consequence of self-sufficiency and competitive manufacturers, the solution is not protectionism