China Economics

China Economics Focus

1 March, 2017

Deeper capacity cuts needed to avert protracted slowdown

We estimate that sectors responsible for two-thirds of China’s industrial output now suffer from overcapacity. Despite this, policymakers continue to drag their feet on reform due to fears that deep capacity cuts would cause a rise in lay-offs and an immediate economic downturn. But unless officials act soon, the economy’s sustainable growth rate could more than halve in the years ahead. In any economy, a cyclical fall in demand can create spare capacity temporarily. But a major concern in China’s

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