China Seen Facing Protectionist Backlash Next Year

The EU Chamber of Commerce in China has announced that China may face a protectionist backlash because Chinese manufacturers, working at overcapacity, are dumping materials on the market:

[Chamber president, Jörg Wuttke] was speaking at the introduction of a study into industrial overcapacity in China, a longstanding situation that the chamber believes has grown more serious as a result of the global financial meltdown and Beijing’s aggressive response to it.

“The crisis has throttled demand for exports from China at a time when even more investment, in the form of the Chinese government’s massive stimulus package, is being pumped into building new plants and adding unnecessary capacity,” the report said… In a survey of the chamber’s members, 56 percent of respondents identified local government policies aimed at luring investment as the main macroeconomic reason for overcapacity; loose lending was the second most frequently cited cause.

Mr. Wuttke welcomed efforts by the central government to curb new capacity but said it was often powerless in the face of local governments that craved new factories for the tax revenue and jobs they could generate and that have done everything to keep existing plants from going under.

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