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December 10, 2015

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Home » Business » Manufacturing

Long-term pain is the bane of industrial firms

By Leng Cheng | December 10, 2015, Thursday | Print Edition

CHINA’S industrial economy is facing long-term pain due to worsening overcapacity and rising cost, and companies have no need for finance due to the two factors, a survey said yesterday.

Around 56 percent of industrial firms in China reported that supply exceeded demand for their products in the domestic market in the third quarter of 2015, and the index reflecting business sentiment stood at 47, below the neutral level of 50, said Gan Jie, the professor who devised the survey of 2,007 industrial firms done by Cheung Kong Graduate School of Business, in Shanghai yesterday.

“Contrary to public consensus, firms do not have much need for financing due to overcapacity and sluggish investment,” Gan said. “Only 2 percent of the firms cited financing as the constraining sector for their growth in the third quarter.”

Gan pointed out that the result was consistent with the Chinese central bank’s index of loan demand, which sank 49.9 percent in the third quarter to touch its lowest on record.

Gan said the main problems are structural and fundamental.

“The current problem is due to over-investment and a continuing lack of core competitiveness over many years,” Gan said, adding that easing monetary policy would not boost the sector.

“To solve it, long-term industrial policy is the key: to ensure an orderly bankruptcy process, help the remaining companies upgrade their products and increase income and enhance domestic demand,” Gan pointed out.

The survey said that heavy industries — ferrous metals, textiles and non-metal ores — struggled the most.

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