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Does China’s weak domestic demand really lead to excess capacity?: People's Daily_我的网站

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A worker fulfills orders for energy-saving and environmentally friendly boilers destined for export in a manufacturing enterprise in Nantong, East China's Jiangsu Province on August 4, 2026. The enterprise offers products including industrial waste disposal equipment, with sales to more than 30 countries and regions. Photo: CNS PhotoIn recent years, some economies, anxious about their own industrial competitiveness and market position, have politicized economic and trade issues, taking turns to hype false narratives such as "China overcapacity" and a "China Shock 2.0," and using them as pretexts to roll out protectionist measures.
But what are the facts on the ground?
China's Ministry of Commerce recently released a document titled China's Position on the So-Called Excess Capacity Issue. Reviewing the evolution of the global capacity landscape from a historical perspective, it offers an objective analysis of how industrial subsidies, trade surpluses, economic imbalances and market competition relate to "overcapacity," sets out China's policy practices and the direction of its efforts, and puts forward China's ideas and proposals - a forceful response to the "China overcapacity" narrative.
Plainly, the argument that "China's inadequate domestic demand gives rise to excess capacity" rests on a logical sleight of hand - it takes a localized phenomenon at the micro level of the market and applies it wholesale to the structure of the macroeconomy, a picture far removed from reality.
China is not only a major manufacturing power but also a major consuming power. Domestic demand has long been the main engine of the Chinese economy.
To see through the logical fallacy of the "overcapacity" narrative, one must first be clear about where the Chinese economy actually sits in the global landscape.
In the course of economic globalization, China has actively integrated itself into the international division of industrial labor and become the "world's factory" in the truest sense. Chinese manufacturing has enriched the global supply of goods, lowered living costs for consumers in countries around the world, and played an important part in easing global inflationary pressure. But to define China simply as a "producer" on that basis, and from there to conclude that it suffers from "inadequate domestic demand and overcapacity," is a proposition that does not hold water.
From 2013 to 2024, domestic demand contributed an average of 93 percent to China's economic growth, with consumption and investment accounting for an average of 55 percent and 38 percent respectively. China's total retail sales of consumer goods rose from 23.8 trillion yuan ($3.53 trillion) in 2013 to 50.1 trillion yuan in 2025, doubling in size.
Measured at the World Bank's purchasing power parity rates, China's total retail sales of consumer goods in 2025 were 1.7 times those of the US, making the country the world's largest market for consumer goods in all but name. China today ranks first globally in the physical volume of goods consumed, and its per capita annual consumption of some industrial products already approaches the levels seen in developed economies.
China keeps expanding its domestic demand and is working toward a higher-level balance between supply and demand.
Growth in China's total retail sales of consumer goods has slowed somewhat in recent years, and some have taken this as proof of weak domestic demand. That reading is neither objective nor complete.
A strong domestic market provides strategic support for Chinese modernization. The outline of China's 15th Five-Year Plan (2026-30) period devotes a dedicated part to building such a market, stressing the need to adhere to the strategic focus of expanding domestic demand, to expand effective investment, to further implement special actions to boost consumption, to promote the expansion and upgrading of commodity consumption, to unleashing the potential of service consumption, to strengthening the foundation of residents' consumption and to continuously improve the consumption environment - using new demand to guide new supply, and using new supply to create new demand, so as to promote a virtuous cycle between consumption and investment, and between supply and demand, achieve a higher level of dynamic balance between supply and demand.
The slowdown in retail sales growth is consistent with China's shift from high-speed growth to high-quality development, and it also reflects the upgrading of the country's consumption structure. China's consumer market is moving faster from one dominated by goods toward one in which goods and services carry equal weight. Spending on services is growing rapidly and is expected to account for more than half of the total by 2030.
China's super-sized market is not only the bedrock of its own development but also a broad platform on which countries around the world can share in the dividends of that growth.
China has ranked as the world's second-largest importer for 17 consecutive years and is a major export destination for nearly 80 countries and regions. It has granted zero-tariff treatment to 63 countries and regions, becoming the first major economy in the world to extend full zero-tariff coverage to every African country and every least developed country that has diplomatic relations with it. It is also the only country to host an international import expo, having staged eight editions of the China International Import Expo with cumulative intended deals worth more than $580 billion. Over the 14th Five-Year Plan period (2021-25) period, China's cumulative imports topped 90 trillion yuan. These facts and figures show clearly that China is not just the "world's factory" but, still more, the "world's market."
Looking ahead, China's middle-income group is set to exceed 800 million people within little more than a decade, and per capita GDP is expected to reach the level of a moderately developed country. With vast room for consumption and ample potential and vitality, domestic demand will remain the main engine of China's economic development and will keep injecting strong momentum into world economic growth.
This was compiled and translated by the Global Times English edition based on an article published in the "Chisu Jinsheng" economic commentary column of the People's Daily on August 6, 2026.
。 China's naval ship Honghe Photo: China's Ministry of National Defense

China's naval ship Honghe Photo: China's Ministry of National DefenseChina's Ministry of National Defense said on Tuesday that Chinese and Indonesian naval vessels will conduct a navigation exercise in waters east of Taiwan island in mid-August. It will be the first time the Chinese and a foreign navy have conducted an exercise in the waters, as a Chinese military affairs expert told the Global Times on Tuesday that the exercise carries great significance, demonstrating China's sovereign rights and jurisdiction over the exclusive economic zone east of Taiwan island.
In mid-August, China's naval ship Honghe will conduct a navigation exercise with an Indonesian Navy ship east of Taiwan island. The drill will focus on subjects including communication drills and underway replenishment. It aims to boost the two navies' capacity for joint operations, deepen practical bilateral cooperation and jointly safeguard regional peace and stability, according to China's Ministry of National Defense on Tuesday.
China and Indonesia have held joint exercises on several occasions. From late November to early December, the two countries held a joint humanitarian assistance and disaster relief exercise, involving forces from the Chinese and Indonesian armed forces' land, naval and air services.
The upcoming exercise by the Chinese and Indonesian navies in waters east of Taiwan Island will be the first naval exercise between China and a foreign country in those waters, making it "highly significant," military affairs expert Zhang Junshe told the Global Times on Tuesday.
Zhang said the move is intended to clearly convey China's position to the outside world: "China has sovereign rights and jurisdiction over the exclusive economic zone east of Taiwan Island."
"Inviting foreign naval vessels to conduct training in waters under China's own jurisdiction is normal and reasonable. The act also demonstrates that China has sovereign rights and jurisdiction over these waters. The relevant scope of China's sovereignty and maritime rights and interests includes the territorial waters east of Taiwan island, as well as the exclusive economic zone and continental shelf," Zhang said.
Previously, the PLA Eastern Theater Command conducted joint exercises codenamed "Justice Mission 2025" in the Taiwan Straits, and in waters to the north, southwest, southeast, and east of the island. The exercises highlight the PLA's sacred mission to firmly safeguard national sovereignty and territorial integrity, protect the fundamental interests, security and well-being of the 1.4 billion Chinese people, including Taiwan compatriots, oppose "Taiwan independence" separatist forces, and oppose interference by external forces.
Since June this year, China Coast Guard vessels have conducted regular law-enforcement patrols in waters east of Taiwan island, with the aim of exercising jurisdiction in accordance with the law and safeguarding China's territorial sovereignty and maritime rights and interests.
These actions were necessary in response to the unilateral decision by Japan and the Philippines to announce the launch of boundary negotiations concerning waters east of Taiwan island, which seriously infringes upon China's territorial sovereignty and maritime rights and interests.
Zhang said the joint naval exercise by China and Indonesia in these waters will further expand China's "toolbox" for safeguarding national sovereignty and maritime rights and interests. "It fully demonstrates that China has both the capability and firm resolve to uphold its maritime rights and interests through routine practical maritime actions, and to demonstrate its sovereign rights and jurisdiction in relevant waters east of Taiwan island."
This will be the second instance of maritime cooperation between China and Indonesia this month and another example of the increasingly substantive military-to-military relationship between the two countries.
A Chinese PLA Navy's task group, comprising the training ship Qijiguang (Hull 83) and amphibious dock landing ship Kunlunshan (Hull 998), which is carrying out the far seas internship training and visit mission, arrived at Tanjung Perak Port in Surabaya, Indonesia, on August 2, for a four-day goodwill visit, according to China Military Online.
"In recent years, the navies of China and Indonesia have continuously expanded cooperation including joint drills and reciprocal ship visits, advancing bilateral military to military ties in breadth and depth," Jiang Bin, a spokesperson for the Ministry of National Defense, stated at the regular press conference on July 30.
Zhang said the series of maritime exchanges between China and Indonesia not only represents a concrete implementation of the consensus on building a China-Indonesia community with a shared future, but also further strengthens strategic mutual trust between the two militaries.
Such cooperation, he said, will help enhance the two sides' ability to jointly respond to maritime risks and challenges, inject positive momentum into maintaining order in surrounding waters and promoting regional maritime security and stability, and set a useful example for equal and mutually beneficial maritime defense exchanges among countries in the region.
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