Manufacturing starts again: most afraid of over-expansion of homogenization capacity
June 20 07:29:46, 2025
Since the beginning of this year, both domestic and international market demands have gradually weakened, revealing underlying issues within the rapidly growing manufacturing sector. For instance, the machinery industry has seen a downturn across key metrics like industrial added value, total output, profits, export revenue, product output, and fixed asset investment. The industry landscape has grown more complex, with businesses finding operations increasingly challenging. Data indicates that during the first nine months of the year, the machinery industry's growth rate was 8.6%, falling below the national average industrial growth rate by 1.3 percentage points, ranking 10th among 12 industrial sectors. One contributing factor is excessive investment in the manufacturing sector, leading to overcapacity. As noted at the "2012 National Machinery Industry Economic Situation Reporting Meeting," a senior official from the Ministry of Industry and Information Technology emphasized that overcapacity poses significant risks. The steel industry serves as a stark example, where capacity has surged by approximately 50% in recent years.
Cai Weici, Executive Vice President of the China Machinery Industry Federation, highlighted the severity of the situation, pointing out that despite an annual increase in overall demand, supply capacity has expanded at a much faster pace, intensifying cutthroat competition. A survey of key enterprises revealed that cumulative orders for the first nine months of the year fell by 0.35% year-on-year, compared to over 20% growth in previous years. Industries such as construction machinery, power transmission equipment, wind power equipment, and machine tools, which experienced rapid growth in recent years, continue to face intense price wars.
Cai Weici also noted that aside from technological limitations and localized challenges, most mechanical products suffer from oversupply and fierce competition. Industry analysts suggest that competition will lead to a Darwinian struggle where firms excelling in independent innovation, proactive supply of critical components, rapid product upgrades, and core competitiveness are likely to thrive. Conversely, companies lacking distinct features or advantages may face declining efficiency or even collapse. This observation aligns with industry statistics showing that enterprises adjusting early to "high-end and high-level" strategies have achieved counter-cyclical growth, with production and sales increasing by over 20%. These enterprises constitute roughly 20% of the total, while another third have seen significant drops in production, sales, and profits.
The current issue in the machinery industry isn't a lack of demand but rather the rapid expansion of homogeneous capacity. As Cai Weici remarked, "When supply surpasses demand, suppliers lose negotiating power. To escape a voiceless market, differentiation is essential; only by focusing on specific fields can one create a niche with 'shortage' conditions and profitability above peer averages."
Fortunately, some regions have recognized the dangers of homogeneous competition and overcapacity expansion. For example, in Li Sen's view, industry development should avoid following trends blindly and instead emphasize unique strengths based on local conditions. He mentioned plans to build on existing foundations in the bearing industry—such as ferrules, steel balls, and dust covers—to further develop the sector and extend into high-end segments of the supply chain.
Meanwhile, developed nations are tightening their grip on the high-end equipment market and expanding into mid-range products, particularly in automotive, CNC systems, and machine tools. This trend is becoming increasingly pronounced, posing challenges to domestic companies looking to capture local markets. Cai Weici emphasized that addressing this requires comprehensive adjustments across the entire industrial chain, restructuring long-established industrial frameworks, curbing blind homogeneous capacity expansion, and enhancing "soft" capabilities. He stressed that "large and heavy" should evolve into "fine, delicate, and refined" to guide the industry toward sustainable growth and away from stagnation.
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