There is No Overcapacity

What if “overcapacity” isn’t China’s flaw - but Europe’s wake-up call?

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Overcapacity’ has become a buzzword in trade policy discussions, from US to the EU. In recent months, European leaders have grown increasingly alarmed about what they perceive as a potential tsunami of Chinese products flooding global markets. This is no longer just about China selling high-volume, capital-intensive products like steel or labor-intensive goods textiles. It’s now about China exporting high-quality, automation-intensive products like electric vehicles and batteries at scale from its new green industries of the future.

Until recently, it was the U.S. taking the lead in calling out China's overcapacity. With Trump-era tariffs, followed by Biden’s Inflation Reduction Act, the U.S. sought to decouple and protect its domestic manufacturing. But now, the EU is also ringing alarm bells. During Wang Yi’s visit to Brussels, China’s top diplomat was met with lots of concern. European leaders pressed him on subsidies, market distortion, and unfair competition. Behind the diplomatic language lies a deeper fear in Brussels: Europe’s industrial base is no match for the scale, speed, and great pricing power of Chinese manufacturing. They are right to be concerned. In fact, they should be freaking out.

But not so much because China intentionally tries to distort global markets. Rather, because Beijing has limited control over how overcapacity is created in China. It’s not merely the result of top-down industrial policy. It’s deeply baked into the grassroots fabric of China’s hyper-competitive innovation ecosystem. To China, this isn’t a flaw in the system, it’s a feature of the Chinese innovation model. What may look like overcapacity to Western eyes is seen in Beijing as the natural outcome of ambition, investment, and industrial upgrading.

China, therefore rejects the very label of “overcapacity.” In its official statements, what the West describes as dumping or distortion, China reframes as “advanced production capacity,” “green transition leadership,” or even “responsible global supply contribution.” Chinese policymakers argue that if the world wants to meet its climate targets, someone has to build the wind turbines, batteries, and solar panels. China just happens to do that faster, better, and cheaper.

From Volume to Value.

The debate about overcapacity touches a much deeper fault line than subsidies or trade distortions. At its core, it’s a confrontation between two fundamentally different models of innovation and value creation. In the West, innovation is often exclusive. A single new product or technology is developed through long R&D cycles, protected by intellectual property and standards, and monetized through scarcity, marketing, and high margins. One breakthrough product, one blockbuster drug, or one viral platform can dominate the market for years. A large moat is created, and the castle behind it is fiercely defended.

But China turns this model on its head.

China doesn’t try to build a better castle. It storms it. Not with a secret weapon from Beijing like subsidies or overinvestments, but with thousands of ladders: thousands of Chinese companies launching ‘good enough’ products, iterating rapidly, scaling aggressively. Innovation is the outcome of continuous trial-and-error, fueled by open competition and local adaptation. What Western policymakers often call overcapacity is in fact a learning strategy.

In China’s model, volume creates value.

By producing at scale, Chinese companies move faster. They lower costs, attract top talent, and quickly adapt to evolving customer needs. Every single product shipped becomes a lesson. Every failed attempt is part of a new ecosystem’s collective intelligence. This isn’t just a state-led top-down industrial policy. It’s a bottom-up race of hundreds of players - private, semi-private, and state-owned - all trying to win in one market or industry. From this chaos, the fittest and fastest scale up. And by the time the West labels it “overcapacity,” China has already industrialized the innovation and made it export-ready.

The result is a different innovation culture: instead of the Western culture where ‘value creates volume’, in China’s model ‘volume creates value’. 

Where the West chases “first-of-a-kind,” China chases “good-enough-at-scale.” Where the West protects value by restricting access, China creates value through access and adoption. In sectors like EVs, batteries, solar, robotics, chemicals or biotech, China isn’t just exporting goods - it’s exporting a model of innovation through volume. The misreading of Western politicians is to see China’s volume as a problem, rather than recognizing it as a model designed to create more value - not just more volume. That model may not fit Western IP logic, but it resonates with the Global South, where affordability, access, and speed matter more than uniqueness.

So is this really about “overcapacity”? Or is it about a Western system coming to terms with a new global benchmark - one where value is no longer a luxury, but a volume-driven public good?

It’s a New Game

Overcapacity says less about China’s excess, and more about Europe’s limits. While China builds factories for high-quality products in months, Europe debates permits and consensus. While Chinese companies flood new markets with iterative products, Europe clings to old models, old margins, old structures, old jobs and old prestige.

Europe’s anxiety is understandable. But its reliance on import tariffs reveals a deeper discomfort: it no longer sets the pace, it reacts to it. A system that built its industrial power on high-value, high-margin goods now feels overwhelmed by a system that extracts value from volume. Tariffs may slow the pressure for a while, but they won’t fix the underlying asymmetry. Europe cannot stop China from producing at scale, because scale is built into the design of its innovation model.

So what should Europe do next? It begins by shifting the lens. The real danger for Europe isn’t that China is winning by overproducing, but that Europe is now merely playing not to lose. While China rewrites the innovation model, Europe hesitates, debates, and delays. The problem is not overcapacity, but a Europe paralyzed by caution, consensus, and its past model.

This is not a moment for grand declarations, but for pragmatic, collective action. Jean Monnet - the founding architect of the European Union - understood that European progress doesn’t come from ideology, but from solving real problems in critical sectors. He didn’t begin with lofty ideals or defensive walls, but with the practical task of expanding coal and steel production to power the European industry. Not with big words, but with small steps - beginning where it matters most.

Europe must now ask itself a hard but urgent question: what are we willing to give up to preserve our prosperity? If we insist on defending our current wealth at all costs, we may end up losing it even faster. Because while China and the U.S. redefine the game, we risk getting crushed in between. Europe must now decide: do we sit at the table - or are we on the menu? Let’s get back to the hunger that once built Europe!