China has substantial overcapacity in the electric vehicle sector, producing three times the number of vehicles it can sell domestically. This overproduction results in price cuts, significant financial losses for companies, and trade conflicts due to increased exports. Overcapacity affects other sectors, contributing to declining profits, debt issues, and ongoing deflation evidenced by falling factory gate prices. The situation is compounded by soft budget constraints allowing unprofitable firms to survive, alongside a historical emphasis on industrial policy and self-reliance established since the 2000s.
China's electric vehicle sector faces chronic overcapacity, enabling it to produce three times its domestic sales capacity, leading to price cuts, financial losses, and trade tensions.
The broader overcapacity issue is entrenched across various sectors in China, impacting profits, debt management, and causing persistent deflation, significantly affecting the national economy.
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