China’s industrial overcapacity is “sucking the oxygen out” of its economy, fueling a dangerous buildup in bad loans and now exacerbating trade tensions with the West. Yet although the Communist Party has been aware of the problem for years, it has failed to tackle it.

Those are the findings of a new report by the European Chamber of Commerce in China that blames complacency, a lack of leadership and protectionism by local governments for China’s failure to address the problem.

“We have heard the same soundtrack for years — ‘We are aware of the problem, we are going to deal with this,’ ” said Chamber president Jörg Wuttke. “But the problem is getting worse. Now we are asking: Do you have the audacity to implement your policies?”

China’s state-owned heavy industry expanded too far and too fast during the boom years, in a borrowing and investment splurge. Now, as the economy slows, there is too much industrial capacity chasing too little demand. Many plants have been forced to cut back output and are struggling to pay back loans, but, instead of closing down, these “zombie” factories are being kept alive, at a huge cost to the economy and the banking system.