Western countries are lining up to name and shame China for overproduction

G7 finance chiefs criticized China's industrial overproduction, saying they will consider taking steps to ensure a "level playing field."

• Western nations criticize China's cheap exports, citing global economic threats.
• The US, Germany, and France lead the accusations against China's export practices.
• China has defended its production, while industrial profits rise, likely intensifying trade tensions.

Western countries are lining up to call out China for its barrage of cheap exports that are flooding the world's markets.

The US has been leading the criticism in recent months, with Treasury Secretary Janet Yellen broaching the issue last month during her trip to China. A week later, Europe's top economy echoed the same concerns when German Chancellor Olaf Scholz visited China.

Over the weekend, France — the European Union's second-largest economy — also hit out at China.

"We have an issue with the economic model in which China is producing more and more cheaper industrial devices because it could be a threat not only for the EU, not only for the US, but for the global world economy," finance minister Bruno Le Maire said in an interview with Bloomberg TV. "We need to address that issue."

Le Maire's complaint came after finance chiefs from the Group of Seven, or G7, stepped up their game with a sharp rebuke to China following a meeting in the resort town of Stresa in Italy.

"While reaffirming our interest in a balanced and reciprocal collaboration, we express concerns about China's comprehensive use of non-market policies and practices that undermines our workers, industries, and economic resilience," wrote the G7 finance ministers and central bank governors in a statement on Saturday. "We will continue to monitor the potential negative impacts of overcapacity and will consider taking steps to ensure a level playing field, in line with World Trade Organization (WTO) principles."

China pushes back on criticism, industrial profits rose in April

Beijing has consistently resisted the West's criticism that it is dumping cheap goods on the world market. Chinese authorities say the West's accusations are protectionist and aimed at containing China's economic growth.

"It cannot be labeled 'overcapacity' simply because a country's production capacity exceeds its domestic demand," said He Yadong, a spokesperson for China's Commerce Ministry earlier this month.

He added that many developed nations have been exporting a massive amount of goods for a long time and should not criticize China for exporting too many new energy products — which the West is taking aim at.

China is producing a lot of new energy products as the country navigates a painful economic transition, from one reliant on real estate and low-cost manufacturing to the hot "new three" sectors of electric vehicles, lithium batteries, and solar panels. The West is also eyeing those fast-rising industries.

In April, profits at China's industrial companies rose 4% from a year ago, reversing a drop in March, according to official statistics released on Monday.

Industrial profits also rose about 4% in the first four months of the year from a year ago, thanks to a 76% surge in the earnings of computer, communication, and other electric equipment, according to the statement. In comparison, profits at general equipment manufacturers rose just 6% from January to April.

While profits at industrial enterprises recovered steadily from January to April, "domestic demand remains insufficient, and the external demand environment remains complex and severe," Yu Weining, a government statistician, said in a statement.

The new data from China is likely to add even more tensions to the trade tiff between Beijing and the West.

Avoiding 'China shock' 2.0

Earlier this month, President Joe Biden unveiled sharply higher tariffs on a range of imports from China, including electric vehicle batteries and semiconductor chips.

Meanwhile, the European Commission launched an ongoing probe into whether EV imports from China benefited from illegal subsidization that, in turn, threatens to damage the EU's EV manufacturers. If this is found to be true, the EU could impose tariffs on these imports.

The West's hawkish moves toward China now follow the East Asian giant's breakneck industrialization to its position as the factory of the world over the past four decades. That quick ascendance wiped out jobs and decimated communities elsewhere — a phenomenon three researchers termed "China shock."

Now, the West wants to get ahead of the curve, particularly in the hot green and new energy sectors.

"Fundamentally, Biden administration officials are trying to avoid repeating the mistakes of past decades when, they believe, the United States (and its allies) did not do enough to counter China's unfair trade practices until it was too late and Chinese products flooded markets and cost jobs," wrote Josh Lipsky, the senior director of the Atlantic Council's GeoEconomics Center on May 14.

"It's not that China hasn't been creating overcapacity for decades; it's that the sectors China is now doing it in are considered critical for national security. That is what is driving so much of this reaction," said Lipsky, who is also a former adviser to the International Monetary Fund.