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Industrial Policy and International Commercial Rules: How to deal with China’s overcapacity phenomenon (Japanese)

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  • Mariko WATANABE

Abstract

This paper reviews research on industrial policy to analyze the economic structure of friction caused by China’s overproduction. While industrial policies that enhance economies of scale can foster economic growth, they may also lead to "international market failures," such as undermining trading partners' industries and deteriorating terms of trade, resulting in economic friction. Theoretical studies recommend achieving zero tariffs to maximize trade benefits and implementing cooperative industrial policies to address these issues. China's developmentalism aims to harness economies of scale, with evidence showing instances of market encroachment. Its extremely low prices likely reflect dynamic comparative advantages, necessitating stricter subsidy regulations and rules for fair competition. Beyond WTO rules, international frameworks are needed to distribute the benefits of economies of scale equitably and prevent their abuse of scale power. Trial uses of the new rules within CPTPP or other FTAs can help to learn how to correct the market failures and to promote unified industrial strategies to stabilize global trade relations.

Suggested Citation

  • Mariko WATANABE, 2025. "Industrial Policy and International Commercial Rules: How to deal with China’s overcapacity phenomenon (Japanese)," Discussion Papers (Japanese) 25003, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:rdpsjp:25003
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    File URL: https://www.rieti.go.jp/jp/publications/dp/25j003.pdf
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    References listed on IDEAS

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