Goods from China are now flooding the global market at unbeatable prices, not only because of cheap production costs. Behind the “cheap” label, the reality is that these prices are born from a combination of comprehensive supply chain control and overcapacity that is increasingly pressing the industry.
EV: Production Outpaces Sales
In the EV sector, China is now the world’s largest producer. CAAM reports that China’s new energy vehicle (NEV) production in 2024 will be around 11–12 million units, while domestic sales are only around 8.5–9.5 million units.
This gap between production and domestic sales is what creates the surplus, with China exporting around 1.2–1.5 million EV units per year.
When too many factories and brands operate simultaneously, manufacturers are forced to cut prices to maintain volume. This is the main reason why Chinese EV prices are falling rapidly, even as technology and specifications improve.
These low prices are due to vertical integration factors where large manufacturers control batteries, components, assembly and logistics. However, when capacity is too large, low prices are no longer the preferred strategy, but a necessity to absorb excess production.
Coffee & Ice Cream: Large Scale, Thin Margins
The phenomenon of excess capacity also occurs in the food and beverage sector. In the coffee and ice cream segment, for example, large-scale F&B chains in China are able to brew tens of millions of cups of coffee per month. However, when domestic sales slow due to fierce competition, excess production is absorbed through aggressive promotional prices and eventually exported finished or semi-finished products.
Coffee and ice cream are sold cheaply because of the large production scale and low unit costs. When there are too many players, price competition among themselves squeezes margins until only the big players can survive.
Chain Effect: Cheap for Consumers, Pressure on Industry
For consumers, these cheap prices of goods appear to be a victory. However, from an economic perspective, prolonged excess capacity can trigger a race to the bottom. Margins shrink, new investments are delayed, and the market eventually undergoes an industrial refining process.
Cheap Chinese goods are not just about efficiency or sophisticated technology, but the result of a combination of resource control, large production scale, and excess capacity. As long as production exceeds domestic sales, price pressure will continue to be felt by everyone, whether it's an electric vehicle costing tens of thousands of ringgit, or a cup of coffee and an ice cream cone costing RM2.50.
