China’s trade surplus reached $1.18 trillion in 2025, and the backlash is intensifying. On July 29, 2026, the Ministry of Commerce (MOFCOM, 商务部 shāngwùbù) released a new policy paper pushing back against what it calls “unfounded overcapacity claims” from trading partners — framing temporary supply-demand mismatches as a normal byproduct of technological change and global specialization. For foreign companies exporting from China or competing with Chinese goods abroad, this paper is a signal: trade defense investigations are accelerating, and your supply chain needs a plan.
Why It Matters
The term “overcapacity” (产能过剩, chǎnnéng guòshèng) has become the single most explosive word in global trade diplomacy. The European Union has launched anti-subsidy investigations into Chinese electric vehicles, solar panels, and wind turbine components. The United States has imposed tariffs on Chinese steel and aluminum at rates exceeding 25%. Even emerging markets — India, Brazil, Turkey — are initiating safeguard investigations against Chinese industrial exports.
MOFCOM’s paper is Beijing’s most comprehensive rebuttal yet. It argues that capacity utilization rates in many targeted sectors — including EVs (78% in H1 2026), solar PV (82%), and battery manufacturing (76%) — are within normal industrial ranges. The ministry warns that unilateral trade measures “disrupt global supply chains and harm the interests of businesses and consumers in importing countries.” Translation: China will not voluntarily restrain exports, and foreign companies caught in the middle need to prepare for prolonged friction.
For your business, this is not academic. If you export Chinese-manufactured goods to markets launching trade defense investigations, your landed costs could rise by 15-40% within 6-12 months. If you source components from China for assembly elsewhere, rules-of-origin complexity is about to increase substantially.
The Details: What MOFCOM’s Paper Actually Says
The policy paper makes three core arguments. First, it claims that overcapacity allegations conflate cyclical downturns with structural problems — global demand for EVs, solar, and batteries is projected to grow 3-5x by 2030, so current production capacity is forward-looking, not excessive. Second, it points to China’s own domestic restructuring: the steel industry reduced capacity by 150 million tons between 2016-2025, and cement capacity utilization fell to 53% in 2025 as the property downturn forced plant closures.
Third — and most consequentially — the paper signals that MOFCOM will respond to foreign trade measures with “corresponding actions to protect the legitimate rights and interests of Chinese enterprises.” This is diplomatic language for retaliation. In the past 12 months alone, China has imposed export controls on 14 European entities, launched anti-dumping investigations into EU brandy and pork products, and restricted exports of rare-earth processing technologies.
The timing is important. China’s Politburo met in late July and struck a cautious tone on the economy, signaling flexible policy for H2 2026 while prioritizing existing stimulus over new “bazookas.” Against that backdrop, exports remain China’s growth engine — industrial profits surged 18.7% in H1 2026, disproportionately driven by technology and export-oriented manufacturing. Beijing cannot afford to let trade barriers accumulate without pushing back.
The European dimension is especially acute. Caixin Global’s cover story documents how Europe is “fortifying” against China’s export juggernaut — the EU’s anti-subsidy framework, carbon border adjustment mechanism (CBAM), and proposed foreign subsidy regulation create a three-layer defense that Chinese exporters must now navigate. MOFCOM’s paper directly addresses these mechanisms, calling them “disguised protectionism.”
What You Should Do
If your business touches Chinese exports — as a manufacturer, importer, or supply chain manager — here are the near-term actions to take:
- Map your exposure. Identify every product line and component sourced from China that is subject to active or threatened trade defense investigations. The EU’s anti-subsidy probe into Chinese EVs covers 11 separate product categories; the US Section 301 review affects over 1,200 tariff lines.
- Diversify sourcing geography. If 80%+ of a critical component comes from a single Chinese province, you are one investigation away from a cost shock. Vietnam, Mexico, and India now host significant secondary manufacturing capacity in electronics, textiles, and automotive parts — build at least one alternative supply route per key component.
- Monitor MOFCOM’s retaliation calendar. Chinese countermeasures follow a pattern: export controls on dual-use items (2-4 weeks after foreign action), anti-dumping investigations (4-8 weeks), and rare-earth processing restrictions (8-12 weeks). Map your exposure to each category.
- Review rules of origin. If you assemble Chinese components into finished goods in a third country, verify that your product still qualifies for preferential origin under the applicable free trade agreement. Customs authorities in the EU and US are scrutinizing origin claims more aggressively — expect audits.
- Engage early with trade counsel. Anti-dumping and countervailing duty investigations move fast — the US Department of Commerce can impose preliminary duties within 160 days of initiation. Having counsel on retainer before an investigation is announced saves weeks of critical response time.
One Data Point
The number to remember: $1.18 trillion — China’s goods trade surplus in 2025, the largest ever recorded by any country. Every billion dollars of that surplus attracts more trade friction, and the trend line is not flattening.
Where to Go From Here
Based on what you just read:
- Ready to diversify? Read [guide: SLUG-TO-BE-FILLED]
- Need trade compliance help? See [comparison: SLUG-TO-BE-FILLED]
- Tracking tariff changes? Try [tool: SLUG-TO-BE-FILLED]
— China Gateway 360 —
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