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The problem of excess capacity has been escalating in China since 2012, affecting not only such traditional sectors as iron and steel, cement and chemicals but also a growing number emerging sectors such as solar panel and wind energy. In December of that year, the Central Economic Work Meeting identified reducing industrial overcapacity as a key task for 2013. This study examines the nature of overcapacity, its trends, formation mechanism, and issues in governance and policy that may have contributed toward overcapacity. Suggestions are offered on what the government and other players can do to tackle the problem.
Drawing on one hand on theories of industrial organization and game theories, and on the other theories of transitioning economies and findings from studies of China’s local government, the authors try to determine the causal mechanism for China’s overcapacity in the transition period by building a rigorous mathematical model. The analysis addresses such questions as  how enterprises and local government respond to industrial policies, especially in the area of investment, and the effects of government countermeasures against redundant construction and industrial overcapacity. The book contributes to the overall efforts to tackle these problems by offering a sound diagnosis of its root causes and identifying deficiencies in existing policies.