Why overcapacity has been happening in China

The market mechanism is not perfect, and it cannot be the survival of the fittest normally.

The dangers of overcapacity:

1. Overcapacity in many industries will lead to a significant decline in the overall price level, forming a strong deflationary pressure and increasing macroeconomic uncertainty.

2. The development of overcapacity will make the investment expectations of enterprises and the consumption expectations of residents decline, which will make economic growth face more and more obvious downward pressure.

3. The development of overcapacity will lead to a significant increase in banks' non-performing assets and financial risks.

Whether there is excess capacity or not depends not only on production capacity and possible total supply, but more importantly, on how much demand there is. But demand is a variable and is not easy to measure accurately. Therefore, to determine overcapacity, it is necessary to compare the output growth too fast and too violently in a longitudinal comparison, and at the same time indicate the scope, time period, and relative to the effective demand.

The problem of overcapacity exists in most places, but the city Zhengsen will automatically adjust the spring thought, and the production shouts that the service can be overcharged, and the first will be reduced, and the profit will be gone, and some enterprises will be eliminated.

1. At the beginning of reform and opening up, China's economy developed by undertaking the transfer of foreign industries and playing the role of the world's factory. Most of the foreign industries undertaken are labor-intensive, with very low added value, and concentrated in processing and manufacturing. All over the country is working fast to form a strong production capacity.

The conditions for this development model to play a role are that the international economic situation is improving, there is a large demand for the products of these industries, and in addition, our labor force is cheap, resources and energy are cheap, and although the production capacity is huge, it is in a relatively balanced state with the international and domestic market demand.

However, the traditional economic development mode that has been maintained for many years is now not suitable for the improvement of the world demand structure, and is not suitable for the return of the developed economies to the real economy, manufacturing and the rise of protectionism after the international financial crisis in 2008. In other words, there is a mismatch between existing production capacity and relatively shrinking demand, and demand has increased, but supply has not.

2. Overcapacity also comes from inappropriate behaviors in some places. Some places consciously or unconsciously pursue political achievements with significant results in a short period of time, and even engage in large-scale demolition and construction, but they do not pay enough attention to the real economy, advanced manufacturing, and innovative activities that can enhance economic strength.

Because negative externalities refer to the cost of loss caused to the external environment, and this part of the cost is not counted when arranging the output by oneself, it will lead to one's own marginal cost line being lower than the actual marginal cost line, and the output will be larger than the actual output, which will lead to overcapacity.

Extended Materials] Externalities can also be understood as: the asymmetry of costs and benefits in time and subjectivity. When there are externalities, the market cannot reach equilibrium, resulting in a waste of resources. It manifests itself in two specific forms: positive externalities and negative externalities.

Positive externalities mean that decision-makers (or actors) do not own or fully enjoy the benefits of their actions, so that other actors share the benefits with them (e.g., clean air from pollution control); Negative externalities refer to the fact that decision-makers only enjoy the benefits of their actions and pass on the costs to other actors (e.g., environmental damage caused by the production of chemical products). As a typical representative of positive externalities is the provision of public goods, negative externalities are most common in reality when economic development is accompanied by environmental damage and pollution. Negative externalities will lead to overproduction, and positive externalities will lead to underproduction, both of which will deviate from the optimal state of social resource allocation, resulting in waste and destruction of social resources.

The correction of externalities refers to the adjustment of the private marginal costs or private marginal benefits of products or services to make them consistent with the marginal costs or marginal benefits of society, so as to internalize externalities.

Specific measures to deal with externalities: Intervention is a view held by traditional economic theory, and it is still a commonly used method. Property rights and Coase's theorem, as long as property rights have been clearly defined and effectively protected by law, then any party to the transaction has property rights can bring the same result of optimal allocation of resources, which can be achieved naturally through negotiations between the two parties, property rights belong to different people will only bring different income distribution results, this is Coase's theorem.

As a result of the decrease in consumer spending, the products produced by the factories cannot be sold, the workers are in a state of loss, the factories are unable to pay wages or lay off workers, and unemployment increases. Unemployment increases, incomes fall, and consumer spending decreases, creating a vicious circle. So when the economy is booming, the unemployment rate is lower, the products are abundant, the ** is cheap, and everyone has money to spend.

Due to the great abundance of products, the factory's products will be in excess of demand, which will reduce **, and some will reduce production. But the demand is still increasing, and finally slowly as the inventory decreases, **start**. The money in people's hands is slowly decreasing, and some of them are starting to borrow money to consume, ** starting to **, and consumer spending is starting to decrease again.

The economy entered a recession, and after a period of time of filial piety and depression, it began to expand, and slowly prospered, and the economy went through four cycles, recovery, prosperity, recession, and depression, just like spring, summer, autumn and winter, and so on. Some of the consumption expenditures of one person are the income of another person, and if the consumption expenditure decreases, the income of some people will decrease, and the income will decrease, which in turn will lead to a decrease in consumption. In the end, production shrinks or the goods produced are squeezed, and they cannot be sold.

The modern economy generally uses credit overdraft consumption to increase domestic demand, if moderate, it is conducive to economic development, however, excessive overdraft consumption is harmful to the economy. Because credit has a cycle, let's take a family consumption as an example, if a family starts to have no money to spend, the bank gives a limit of 100,000 yuan, he consumes the 100,000 yuan a year ago, and in the second or third year, in order to repay the debt, he no longer consumes excessively. Because the factory saw the increase in consumption in the first year, it felt that there was a slowdown in the market and would increase production, but in the second and third years, the factory produced a lot of goods, and because people had no money to consume, they could no longer spend through borrowing, and the income was used to pay off debts.

So it leads to overproduction. This kind of product is relatively in surplus, and some products are in short supply, such as daily necessities, food. That's why when the economy is in crisis, the food and vegetables in the supermarket are snapped up.

Maybe the car, or some mid-to-high-end goods, can't be sold.