The beginning overcapacity in China isn't because of to less fabs, but because they have not enough qualified personnel according to DigiTimes :
Even as China builds wafer fabs with vigor, overcapacity is starting to weigh on its IC industry as domestic IC design houses, lacking qualified personnel, are unable to place enough orders to fill up the capacity.
China currently boasts 10 wafer fabs, and 15 more are under construction. However, among China’s IC design houses, only Shanghai Hua Hong Integrated Circuit could claim a production value in the hundred million yuan range in 2001, while the combined total production value of the other top 20 domestic IC design houses amounted to less than 200 million yuan.
Moreover, China’s IC design houses mostly focus on the low-end and consumer electronics markets, and their lack of design capability and longer turnaround cycles make them unable to satisfy domestic fab demand.