(July 28): China mounted a forceful defence of its booming exports, rejecting Western claims of overcapacity as it braces for escalating trade friction with the US and European Union (EU).

The Ministry of Commerce published a 10,000-character position paper on Tuesday rejecting trading partners’ claims of excess factory production. It comes as Washington continues a probe into Chinese manufacturing, while Brussels faces an October deadline to address the bloc’s record trade imbalance with China.

“Some economies have hyped up the so-called China excess-capacity issue,” Vice Commerce Minister Yan Dong said at a briefing in Beijing. The paper was intended to “set the record straight”, he said.

The document amounts to Beijing’s most comprehensive rebuttal yet of an argument increasingly driving Western trade policy: that China’s combination of state support, weak domestic demand and continued factory investment is pushing surplus goods onto global markets and threatening producers elsewhere.

The US and EU are among the most vocal critics of China’s industrial policies, saying inexpensive exports — from electric vehicles and batteries to solar equipment and chemicals — risk overwhelming domestic producers. Beijing counters that those shipments reflect technological gains, efficient supply chains and global demand.

Lin Weilong, the director of the policy research office at the ministry, called the US probe a form of unilateralism and said China reserved the right to take necessary countermeasures during the briefing.

He also criticised recent European trade-defence actions, while saying Beijing was willing to address differences with the EU through dialogue.

Beijing challenged one of the main indicators used to support the overcapacity argument. It said capacity-utilisation rates differ across countries and industries, so no single threshold can prove excess production.

Official data showed capacity utilisation fell to 73% in the second quarter, the lowest level since early 2020 lockdowns. The drop was led by the coal mining industry, after a deadly accident sparked widespread safety inspections and led to a plunge in output.

The ministry said the rate “remains within a reasonable range”.

In the paper, the Commerce Ministry rejected claims that subsidies, trade surpluses and internal economic imbalances are evidence of structural overcapacity. It pointed to Beijing’s efforts to enhance subsidy transparency and curb improper local government incentives.

The document also cited the US and EU’s own trade surpluses in products like chips, airplanes, cars and pharmaceuticals, suggesting that running a large surplus does not equal excess production.

Despite China’s rejection of the overcapacity accusations, top leaders began a campaign a year ago to crack down on excessive competition among firms that fuelled a record deflationary run in the world’s second-largest economy.

At the time, it was widely seen as China’s effort to rein in overcapacity and better balance supply and demand within the economy. The initiative has had limited impact so far, however, and inflation improved this year mostly because of higher costs of imported commodities like oil, metal and chips.

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