At a time when the USA is announcing that it is fundamentally restricting its development cooperation within the framework of USAID (United States Agency for International Development) and the EU is facing increasing criticism from the Global South due to the introduction of its carbon border adjustment mechanism (CBAM), China is specifically positioning itself as an alternative economic partner for low- and middle-income countries. The Global Development Initiative launched in 2021 and the announcement of zero tariffs for the least developed countries (2024) portray China as a benevolent trading partner that is actively committed to global economic growth. However, this portrayal is at odds with China's continuously growing trade surplus in the manufacturing sector with its partners in the Global South. This raises critical questions about the sustainability and balance of these economic relations.
Industrial policy causes of Chinese overcapacity
The main causes of China's industrial overcapacity lie in targeted industrial policy measures, extensive government economic stimulus programmes and persistently weak domestic demand. Sectors such as green technologies, mechanical engineering and the basic manufacturing and consumer goods industries are particularly badly affected, as their considerable production surpluses have a lasting impact on global trade due to falling prices and increasing competition. This is reflected in growing Chinese trade surpluses in the manufacturing sector. However, China's striving for economic autonomy and geopolitical considerations suggest that fundamental political course corrections remain unlikely and that overcapacity will continue to characterise Chinese trade relations for the foreseeable future.
Displacement of local industries and increasing dependence in the Global South
Due to China's continued dominance in low-threshold technology products and its simultaneous strategic move into higher-value industries, low- and middle-income countries are coming under increasing competitive pressure from the growing Chinese production oversupply. Chinese exports are squeezing local products out of domestic markets, making industrialisation processes more difficult and creating economic dependencies through the increasing supply of Chinese primary products. At the same time, emerging economies are increasingly being reduced to their role as mere suppliers of raw materials, while China's expansion into higher-value production sectors is making the industrialisation of other countries more difficult in the long term.
Trade defence measures in the Global South: success strategies and limits
In order to counter China's trade dominance, countries in the Global South are increasingly relying on protective measures such as import tariffs, anti-dumping regulations and local value-added requirements. Emerging economies such as India, Brazil and Argentina have successfully used these instruments to protect their domestic industries without triggering significant retaliation from China. However, the success of these strategies relies heavily on resources and effective trade monitoring systems, which lower-income countries often lack. The challenge of China's overcapacity could also encourage co-operation between the Global South and the EU, as both sides have a common interest in fair and balanced conditions in global trade.
Recommendations for action for the European Union
The new BKHS publication "The Global South in the Wake of China's Economic Surplus: Industrial Challenges for Developing Countries and Policy Recommendations for the EU" offers concrete recommendations for the EU. It outlines how Europe can contribute to the economic resilience of low- and middle-income countries through targeted trade agreements, investment in local industries and a diversified supply chain policy. A particular focus is placed on creating fair market conditions and promoting sustainable and independent economic development in partner countries. The author also recommends that the EU supports partner countries in setting up effective monitoring systems to better counteract unfair trade practices. Joint sectoral strategies, for example in the textile sector or in green technologies, could protect both European and local industries and create new market opportunities. Finally, the author suggests using revenues from EU trade tariffs specifically for development programmes to support the sustainable development of industrial capacities in countries of the Global South.
Exclusive event in cooperation with the DGAP
The publication will be published as BKHS Perspective and will be presented at an exclusive event in cooperation with the German Council on Foreign Relations (DGAP) on 28 March 2025 in Berlin. Dr Aya Adachi will then present her findings and discuss possible solution strategies for the EU together with Jacob Gunter (Mercator Institute for China Studies), Michael Laha (DGAP) and Dr Janka Oertel (European Council on Foreign Relations). The moderator will be Dr Elisabeth Winter (BKHS).
Further information and details are available as usual via our Schmidtletter.
