Chinese Manufacturing Overcapacity Triggers Late Industrialisation Dilemma

Gist China has established an "absolute advantage" in global manufacturing, driven by massive state subsidies and cheap credit, resulting in severe industrial overcapacity that is structurally depressing global prices. While this floods international markets with low-cost goods—benefiting consumers and infrastructure projects in the short term—it creates a "late industrialisation dilemma" for developing nations by aggressively stifling their domestic manufacturing capabilities. For UPSC aspirants, understanding this dynamic is crucial as it directly impacts India's self-reliance goals, disrupts critical clean-energy supply chains, and triggers World Trade Organization WTO disputes over defensive domestic policies like the Production Linked Incentive PLI scheme. Background Industrial overcapacity occurs when a country's manufacturing production significantly outstrips both domestic and global demand, a condition artificially sustained by state intervention rather than market forces. Instead of relying on natural comparative advantage, China has engineered an "absolute advantage" through state-directed financial systems that provide cheap credit, robust supplier networks, and massive industrial subsidies. This state backing allows Chinese firms to operate without standard profit-and-return constraints, enabling them to expand market share through negative margins and structural price-undercutting that foreign competitors…