The Effects of Overcapacity

In a Reuters article that can be found here http://www.cnbc.com/id/34158242 , shows the effects of unwise expansion and creating an over capacity and not using the capacity you have. The European Union Chamber of Commerce released their report showing the large over capacity that has been created in China through expansion and the large government stimulus package is causing more issues for their economy and may lead to more issue for the worldwide economy. As the Chinese build up a higher and higher capacity for production they will eventually out strip the demand that has been created for their goods or drop below their optimal price. Thus leading to a slash price to sell policy that will basically lead to dropping product to other countries to use the capacity that has been created. The biggest problem that this could create is the possible destruction of the global economic recovery and failure of the globalization effort that is underway to bring countries closer together. This could quite easily happen due to the animosity that could be created with industries in countries not being able to even come close to competing in the prices offered by the Chinese companies and industries. While in class we mostly talked about the possibility of not being able to have the capacity to keep up with the demand of the market but the over saturation of the market is still possible.