The Capacity Dilemma: How Can Manufactur

The Capacity Dilemma: How Can Manufacturing Break Free When "More and Cheaper" Is No Longer Sustainable?

 

In the context of modern industrial production, "insufficient capacity" is no longer a mainstream concern; instead, "overcapacity" has become the Sword of Damocles hanging over the manufacturing industry. We often take pride in the label of "the world's factory", yet easily overlook a reality: the "strength" of manufacturing should never be measured solely by production scale. When the logic of global division of labor—"other countries can do it, but they choose not to"—is recognized, and when the model of "producing more at lower costs" hides a chain of predicaments, including "low share of national income, sluggish consumption, and dumping accusations against exports", a more thought-provoking question emerges: If every country in the world gets caught in the race to "expand capacity", who will buy the mountain of accumulated products? The laws of the market economy have long given the answer—at the end of overcapacity lies often the shadow of economic crisis and the risk of a downward spiral.

 

The "more and cheaper" model is eroding the long-term value of manufacturing. Over the years, relying on a complete industrial chain and abundant labor force, we have gained an advantage in the mid-to-low-end manufacturing sector. From daily necessities to industrial parts, the label of "Made in China" can be found worldwide. However, the cost of this advantage is the weakened voice of labor in value distribution—a persistently low share of national income directly hinders the activation of the domestic consumer market. Moreover, the export strategy of "low prices for high sales volume" frequently lands us in disputes over "dumping", facing tariff barriers and market restrictions. Take a home appliance enterprise as an example: in order to seize the overseas market, it pressed product prices to near the cost line. Although it maintained its market share in the short term, it dragged the entire industry into the internal friction of "low-price competition", leaving no room for R&D upgrades or employee salary increases. In the end, it fell into a vicious cycle of "the more capacity expands, the thinner profits become". This "volume-driven" path, seemingly an "advantage" of manufacturing, is actually a helpless choice due to the lack of core competitiveness.

 

Under the global division of labor, a "complete industrial system" is not a must for all countries; blind capacity expansion is more likely to lead to pitfalls. In the global industrial chain, each country has a position based on its resource endowments: some focus on technology R&D, others on brand operation, and still others on refined manufacturing. Not every country needs to cover the entire chain from upstream raw materials to downstream assembly. Excessive pursuit of "comprehensiveness" often leads to resource misallocation—pouring limited capital and labor into low-value-added capacity expansion, squeezing the development space in high-end fields. For instance, some Southeast Asian countries did not blindly pursue a complete industrial system; instead, they focused on segmented areas such as electronic OEM and textiles. By improving process precision and controlling capacity scale, they achieved synchronous growth in income and profits. In contrast, some industries in China, in pursuit of "being No.1 in capacity", kept building new factories and expanding production lines. In the end, this led to product backlogs, forcing them to sell at low prices to "reduce inventory", which not only wasted resources but also dragged down economic growth.

 

The essence of a market economy is "supply-demand balance", and the risk of overcapacity is far more urgent than imagined. When capacity far exceeds market demand, enterprises fall into a downward spiral: "products cannot be sold—profits decline—layoffs and salary cuts—consumption shrinks—demand further decreases". Factories have to cut prices to clear inventory, squeezing profits to the limit; declining profits leave enterprises unable to invest in R&D or raise employee salaries, and even force layoffs; reduced residents' income weakens consumption capacity, further shrinking domestic market demand; meanwhile, the export market is blocked by "dumping" accusations. Eventually, a dead cycle of "the more overcapacity, the more sluggish the economy" is formed. Historically, the triggers of many economic crises have been closely related to overcapacity—from the Great Depression in 1929 to the financial crisis in 2008, the shadow of "oversupply" can be seen behind them. Today, against the backdrop of slowing global economic growth and weak demand, clinging to "capacity expansion" will undoubtedly push the economy to a more dangerous edge.

 

The true pride of manufacturing lies never in "how much can be produced", but in "how much value can be created"; the healthy development of the economy also depends never on "how large the capacity scale is", but on "whether supply and demand are balanced and distribution is reasonable". In the future, the key to breaking the deadlock may lie in: stepping out of the "volume-driven" mindset, diverting resources from low-value-added capacity expansion to technology R&D, brand building, and employee welfare improvement—transforming manufacturing from a "production machine" into a "value creator", synchronizing national income growth with capacity scale, and forming a complementarity between the domestic consumer market and export market. Only in this way can we break free from the "overcapacity" dilemma and make manufacturing truly a "ballast stone" of the economy, rather than a "burden".