Since 1990s, due to the unique fiscal decentralization system, official promotion system, local government intervention and other institutional factors, China’s problem of overcapacity has become more and more serious. In 2008 after the global financial crisis, because of government relax control over industry capacity and the subsequent four trillion RMB economic stimulus plan, the serious overcapacity occurred in some industries. Coupled with the slowdown of economic demand, overcapacity problem becomes a more and more prominent contradiction in China’s economy. Resolving overcapacity is an important task of the supply-side reform under the new normal economy, and also a difficult problem to be solved to realize the sustained and healthy development of China’s economy. In order to resolve overcapacity, the central government has begun to introduce a series of administrative measures to regulate and guide local governments to cut capacity. Since 2009, the Ministry of Industry and Information Technology has issued the index of elimination of backward and excess capacity in every province, and has announced the completion of annual capacity indicators of different provinces. In this context, based on the administrative provisions from the Ministry of Industry and Information Technology about eliminating backward and excess capacity by every provinces and using the sample of Chinese A-share listed companies from 2009 to 2015, this paper examines the impact of overcapacity on audit fees. It finds that, due to overcapacity, business, financial and policy risks are rising, and accounting firms improve the audit fees in order to reduce the audit risk, indicating that there is a risk premium of audit fees. Further analysis shows that the risk premium of audit fees of state-owned enterprises having overcapacity is higher than that of private enterprises. The higher degree of marketization enterprises have, the higher risk premium of audit fees caused by overcapacity enterprises get. And there is a lower risk premium of audit fees caused by overcapacity of companies with political connections compared with companies without political connections. Finally, by using a new overcapacity indicator to examine based on the amount of eliminated capacity by provinces constrained by the Ministry of Industry and Information Technology, conclusions remain robust. In conclusion, in the context of China’s current overcapacity and cutting capacity through government intervention, this paper shows that China’s audit market is aware of and focuses on the specific risks of enterprises caused by overcapacity, and auditors increase audit fees by increasing audit procedures and risk costs to reduce audit risks. Risk premium of audit fees caused by overcapacity is essentially passing the risk information of excess capacity of enterprises to the regulators and investors through audit market, thus making auditing play a role of external governance in resolving the problem of overcapacity. This paper reveals the economic consequences of overcapacity at the microcosmic level, and finds out empirical evidence of the governance role of audit market in solving overcapacity problem, which is of great policy significance to capacity cutting, supply-side reform and economic transformation in the new normal economy.