China has diverted financial resources from real estate to manufacturers rather than households, raising overcapacity concerns, deepening factory-gate deflation, and prompting a European Union investigation into its electric vehicle sector.

China’s current path leads to more trade conflicts, warns Pascal Lamy, former head of the World Trade Organization, now distinguished professor at China Europe International Business School. “This is not sustainable,” Lamy said. “Overcapacity will inevitably lead to a problem.”

“We have come to the realisation that this is a structural problem and that it stems from the fact that part of the Chinese production system is not driven by market behaviour, but by Chinese Communist Party-directed investment.”