China's European Market Dump: A Product of Weak Domestic Demand

A European Central Bank study highlights weak domestic demand, not U.S. tariffs, as the reason behind China's surplus product dumping in European markets. The trend, originating from China's housing downturn in 2021, is driven by competitive pricing strategies due to excess capacity and reduced profit margins.

In the latest economic analysis, the European Central Bank (ECB) has identified weak domestic demand in China, rather than U.S. tariffs, as the primary factor driving China's decision to offload surplus products in European markets at extremely low prices. This move significantly impacts European domestic producers.

Growing concerns have emerged within the European Union, as China's exports to Europe have surged to counterbalance the restricted U.S. market access, a shift that predates the recent Sino-American trade tensions. The ECB Bulletin notes this export surge aligns with a decline in domestic consumption in China, especially since 2021.

The downturn in China's housing market started a domino effect of decreased domestic investment, pushing companies to seek foreign markets amid excess production capacities. Consequently, these firms are adopting cutthroat pricing to enhance competitiveness, a strategy expected to lead to a persistent shift in their import-export dynamics.

(With inputs from agencies.)