Overcapacity in Chinese manufacturing will worsen next year, driving down profits, a leading government think-tank said in a report, pointing to restraints on investment as a policy priority.

Profits of most downstream industries would also come under greater pressure because of higher water, electricity and oil costs that could not be immediately passed on to consumers, said the State Information Centre, a unit of the National Development and Reform Commission, itself a powerful influence on economic policy.
The official China Securities Journal newspaper carried the report. Overcapacity, already a recognised problem, would become increasingly common in different industrial sectors, the think-tank said.
“If this cannot be dealt with effectively, it will trigger an overall glut and have a serious effect on the economy,” it said.
Boosting demand was not the only solution.
“The top priority in economic management is to get the enthusiasm for investment into a reasonable range,” it said, urging the authorities to move faster in closing highly pollutive businesses.
China has been trying for more than two years to hold down roaring investment in such fixed assets as factories and office blocks while encouraging private consumption to take up the slack. The authorities fear that too much investment could lead to a bust.