Foreign Affairs

Sharing my piece in @ForeignAffairs where I argue that, unlike the common perception, China’s overcapacity problem is NOT primarily about government subsidies (many of which have been rolled back) or lack of domestic demand (true in general, but not the leading cause in green tech). Rather, it stems from three interlocking internal dynamics: The bureaucratic system’s incentives, reinforced by the fiscal–tax model and worsened by the property market drag. The financial system’s incentives, rooted in the banking sector’s low risk appetite and its preference for visible, short-term results. A hypercompetitive, extremely innovative private sector, which paradoxically has made the problem worse. These three forces reinforce one another and are deeply baked into the system. What makes the problem so hard to unwind is precisely that it’s not just about what the government does or doesn’t do; it’s about aligning a vast network of fragmented and often contradictory incentives. Hence, what’s needed is not merely a correction, but an institutional reckoning.