Chinese firms facing difficulties
A potential global recession is caused by the deteriorating US credit crisis, which is said to force many CEOs of Chinese enterprises to make emergent plan to cut production and corporate expenditure in preparation for leaner times. These companies have for years worked toward an export boom.
As the surplus goods, produced by the fall in exports, can not be digested by domestic market, many Chinese are possibly facing the problem of excess capacity, caused by easy and cheap credit in the several passing years.
The problem is particularly serious in the steel and heavy industry sectors, which play an important role in pushing the economic growth, said by economists and industry analysts.
After huge industrial investment over the past years, production of enterprises in several sectors exceeds the domestic need. Sine then, the country has begun exporting its surplus goods abroad.
In 2003, China’s total exports exceeded imports for the very first time. It is the turning point in China’s external trade. The ascending trade surplus has mostly coming several specific sectors, such as heavy industrial equipment and steel, rather than a wide range of industries.
Steel exports, for example, used to account for 25 percent of the country’s total exports during the past several years. In facing the declining global demand, major steel manufactures had decided to cut its output by 20 percent.
Customs’ statistics showed the growth rate of China’s accumulated export to the United States from January to July is 9.9 percent, the first single digit growth since 2002, 8.1 percentage points down.
It is estimated that for every point of decline in US GDP, whose growth is largely tampered by its internal demand, China’s total exports will drop 4.75 percentage points.
Light industries such as garments and toys have got the same heavy blow from falling exports. But it is said that mainly labor-intensive manufacturing industries are involved, which with little long-term capital investment. Their response will be simply cutting working hours and reducing the shifts.
Even so, thousands of small and medium-sized manufacturing enterprises in Pearl River Delta region can not escape the end of being closed down.
Latest official figures showed that China’s export growth declined to 21 percent year-on-year in August, from 26.9 percent in July. Meanwhile, industrial production growth fell to 12.8 percent year-on-year in August from 14.7 percent in July and 16 percent in June.
“Generally Chinese exports are sensitive to weaker demand in industrialized countries, especially the US,” said Zhao Xinge, a professor at China Europe International Business School. About 40 percent of China’s exports are directed to the US and European Union.
Indeed, the government has acted to ease the impact of the worsening US financial crisis on China’s economy. “We expect China’s government to continue loosening monetary policy and put its fiscal resources to stimulate investment in infrastructure,” said Jing Ulrich, managing director and chairwoman of China Equities at JPMorgan.
But it may take months, if not years, for the government measures to take effect, while the problems generated by overcapacity in some major industrial sectors are pending.
Zhang Ping, a senior steel industry analyst at Umetals, a leading domestic metal consultancy, said:” Sine 2003, there has been sharp and persistent increase of investment in the steel industry, despite some interruption during that period by the government with its macro policy of regulating overinvestment.”
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