Abstract

As the increasing of the cost of resources，the upgrading of domestic demand structure and the adjustment of global industrial structure，the manufacturing of China has been confronted with new serious overcapacity since 2008. This problem has become one of the most important macroeconomic risks in our country，and thus resolving the overcapacity crisis is a major challenge for the sustainable development of economy. Under this background，the paper investigates the present situation of overcapacity in China and its causes，and focuses on the effect and the mechanism of innovation and OFDI on the overcapacity.

The overcapacity of manufacturing shows characteristic of complex，global and secular. From the industry level，the overcapacity shows a tendency of contagion from traditional industries to emerging industries and from local to global. From regional level，the capacity utilization shows a clear co-movement and contagion effect among provinces. From time level，the overcapacity has obvious “inertia”characteristic of path dependence. In terms of the mechanism，demand shock is the direct cause of excess capacity，over-investment and inefficient investment are the channels of forming excess capacity，and systematic distortion under government intervention is the root of excess capacity. Correcting institutional distortions，stimulating enterprises to innovate from the supply side，and inspiring enterprises to effectively invest are the fundamental ways to alleviate structural contradictions of supply relationship and resolve the problem of excess capacity of Chinese manufacturing industries. Promoting technology innovation and the outward foreign direct investment strategies is important ways for government to govern excess capacity crisis.

In short，the background，characteristics and the essence of this new round of large-scale overcapacity crisis are different from those of previous overcapacity crisis. The reason of the excess capacity in manufacturing is that the traditional manufacturing production capacity cannot meet the demand of market under the new situation. The essence of the overcapacity crisis is the insufficient capacity for independent innovation. In order to govern the overcapacity crisis，we should give full play to the production and subjective initiative of the producers through innovation driven development strategy and foreign direct investment strategy. We should improve the innovation ability of manufacturing industry，promote the transformation and upgrading of industrial structure，and promote the international division of value chain to realize manufacturing overcapacity governance.