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Chinese Ambassador Yao Wen, in his 23 August Daily Sun article, “See the Capacity Issue for What It Is and Share in China’s Development Opportunities”, makes a persuasive case against mechanically equating China’s manufacturing strength with “excess capacity”. Trade surpluses do not by themselves prove overcapacity, nor does export success. China’s competitiveness reflects decades of infrastructure investment, technological learning, scale economies, integrated supply chains, research and development, and sophisticated manufacturing.
These arguments deserve serious consideration, but they raise a larger question: is “excess capacity” itself the right analytical frame? We suggest that the controversy is better understood as a Matrix problem being debated as though it were one-dimensional. Production, demand, competitiveness, consumer welfare, employment, investment, absorptive capacity and developmental spillovers are interacting dimensions. A conclusion may be correct along one axis and incomplete for the system as a whole. This distinction matters particularly for developing economies such as Bangladesh.
From Excess Capacity to a Capacity Matrix
China may possess highly efficient firms whose expanding exports result from innovation, scale and lower unit costs rather than economically irrational overproduction. Ambassador Yao is right to emphasise that point, but another variable requires attention: global absorptive capacity.
Production ultimately requires effective demand. When the productive capability of an economy as large as China’s expands faster than domestic absorption in particular sectors, foreign markets become more important. But if export flows are large relative to industries in importing countries, they can generate employment losses, weaker investment and political resistance even while consumers benefit from lower prices.
Here the Matrix Paradigm becomes useful. China can simultaneously possess technological superiority, efficient firms, declining production costs, large export surpluses and insufficient domestic absorption in some sectors, while its exports generate both consumer benefits and industrial disruption abroad. These propositions are not contradictory; they occupy different cells of the same matrix.
An Orthogonal Reading
An orthogonal framework separates questions that are frequently conflated. Is Chinese production efficient? Are Chinese firms globally competitive? Can world demand absorb expanding output? What happens to competing producers and workers elsewhere? Do developing economies acquire productive capabilities from their relationship with China, or mainly consume Chinese production?
Productive efficiency is not demand adequacy. Competitiveness is not trade balance. Consumer welfare is not producer welfare. Exports are not investment, and importing manufactured goods is not equivalent to acquiring manufacturing capability. These distinctions explain why China and its critics can each possess part of the truth.
Western governments can invoke “overcapacity” to rationalise protectionism against more competitive Chinese producers. But China can also be genuinely competitive while the scale of its production imposes adjustment costs elsewhere. What is modest relative to China’s industrial system may constitute a major shock to a smaller economy. The political economy therefore matters: aggregate global gains do not automatically compensate workers, firms or communities bearing concentrated adjustment costs. Economic efficiency and political sustainability must ultimately coexist.
The Bangladesh Paradox
Bangladesh illustrates both the opportunity and the dilemma. Chinese machinery, intermediate inputs and investment have supported Bangladesh’s manufacturing and infrastructure, but development cannot consist of becoming an efficient consumer of another country’s industrial production.
Sustained development requires productive capability: technological learning, domestic supplier networks, diversification, skilled employment and movement towards higher-value activities. This creates a Bangladesh paradox. Affordable Chinese imports can accelerate development while, in some sectors, making domestic industrial emergence more difficult. Bangladesh therefore has an interest neither in resisting Chinese capacity nor in absorbing it passively. Its strategic objective should be to capture part of that capacity.
From Exporting Products to Internationalising Production
As China moves towards more technologically sophisticated production, portions of mature and labour-intensive manufacturing can migrate to economies with complementary advantages. Bangladesh, with its large labour force, manufacturing experience and export networks, should position itself as one such destination.
Chinese firms investing in Bangladesh could manufacture not simply for the Bangladeshi market but for regional and global markets. Potential areas extend beyond garments to light engineering, electronics, renewable-energy equipment and agro-processing. Such investment accomplishes something exports alone cannot: it geographically redistributes productive capability.
Factories create employment; supplier relationships generate local linkages; training develops human capital; joint ventures facilitate technological learning; and export production integrates domestic firms into global value chains. The relationship then moves from “China produces and Bangladesh buys” towards “China and Bangladesh produce together.”
The Capacity Paradox
This leads to a broader proposition: China’s strongest answer to accusations of exporting too much capacity may be not merely to export less output, but to internationalise more of the capacity itself. Exporting factory output differs fundamentally from allowing portions of the productive ecosystem to migrate abroad. The first expands trade; the second expands the geographical distribution of industrialisation.
For developing economies, this could transform the politics of China’s industrial rise. Chinese capacity would be perceived not only as competition arriving at the border, but also as productive capability taking root inside partner economies.
Bangladesh Must Build Its Side of the Matrix
The responsibility, however, cannot rest with China alone. Bangladesh must create conditions that attract internationally mobile production: reliable energy, efficient ports, faster customs clearance, predictable regulation, improved logistics, skilled workers and less bureaucratic uncertainty.
Bangladesh should also distinguish foreign investment from developmental foreign investment. The amount invested matters, but so do local value addition, technology transfer, employment quality, local sourcing, export generation and linkages with Bangladeshi firms. This is again a Matrix problem requiring a Matrix solution.
From China Opportunity 2.0 to Production Integration
Ambassador Yao describes China’s industrial modernisation as “China opportunity 2.0”, rather than “China shock 2.0”. For Bangladesh, that opportunity should mean a transition from market integration to production integration. That transition would convert a trade relationship into a developmental partnership, aligning China’s industrial strength with Bangladesh’s ambition to climb the global value chain further.
The objective should be neither indiscriminate protectionism nor passive absorption of expanding imports. It should be productive redistribution through trade, investment, technology transfer and industrial partnership. For Bangladesh, sharing in China’s development opportunities should therefore mean more than buying what China produces. It should mean acquiring the capacity to produce sophisticated goods alongside China and eventually on its own.
The most consequential question is not whether China has too much productive capacity, but whether China’s extraordinary productive capacity can help create more productive capacity elsewhere. For Bangladesh, that is the dimension of China Opportunity 2.0 worth pursuing.
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The writer is a former physicist and nuclear engineer at the BAEC and Professor Emeritus of Economics at Eastern Michigan University, USA. He can be reached at [email protected]