# China’s Overcapacity Has a Mind of Its Own

> Beijing’s industrial policies face local competition that fuels overcapacity despite central control.
- Title: China’s Overcapacity Has a Mind of Its Own · Foreign Policy
- Summary: Beijing’s industrial policies face local competition that fuels overcapacity despite central control. China’s local governments prioritize short-term gains…
- Keywords: china, local government, overcapacity, industrial policy, evs, beijing, trade surplus, state owned enterprises, gdp growth, investment, local competition, central government
- Source: Foreign Policy — https://foreignpolicy.com/2026/10/26/beijing-overcapacity-exports-manufacturing
- Author: Lizzi C. Lee, Xiao Ma
- Read time: 2 min
- Topics: china, local government, overcapacity, industrial policy, evs, beijing, trade surplus, state owned enterprises, gdp growth, investment, local competition, central government
## China’s export juggernaut grows
China’s auto exports have grown more than tenfold since 2020 and are estimated to reach 10 million vehicles this year.
## Record trade surplus in August
China posted a record trade surplus of $119.1 billion in August alone, putting it on track to surpass the $1.2 trillion surplus of 2025.
## China rejects overcapacity claims
China has vehemently rejected accusations that it is exporting excess capacity.
## Local competition drives overcapacity
Local governments prioritize short-term gains over long-term industrial health, creating overcapacity in sectors like EVs and manufacturing.
## Railway program example
In 2004, China’s railway program was initially planned for 12,000 kilometers by 2020 but ended up with nearly 38,000 kilometers by 2026.
## Auto industry shift
Beijing’s original plan for state-owned automakers failed as private firms like Geely, BYD, and Nio now dominate the new energy vehicle market.
## Local economic pressures
Changchun city faced unprecedented difficulties with industrial profits falling 20 percent in 2025.
## Local officials’ incentives
Local officials compete for promotions based on key performance indicators including economic growth and environmental protection.
## Short tenure problem
Provincial and city leaders serve an average of three and a half years, leading to quick decisions that prioritize short-term gains.
## Local debt cycle
China’s local government debt is exacerbated by cycles of overinvestment that compound over leadership turnover.
## Consumption policies ineffective
Pro-consumption policies are slow to take effect and difficult to measure, making them low priority for local leaders.
## Structural central-local conflict
Beijing relies on local competition to advance policy goals but struggles to control incentives that drive excessive investment.
## The attention economy
Local governments secure investment through attention from top leaders via photo opportunities and media coverage.
## Overcapacity consequences
China’s overcapacity in manufacturing and EVs creates market coordination failures that harm global supply chains.
## Structural problem
Beijing’s central-local relations are undermined by incentives that prioritize short-term gains over long-term industrial health.
## Key takeaway

China’s local governments prioritize short-term gains over long-term industrial health, creating overcapacity in sectors like EVs and manufacturing.