European Chamber Launches New Study on Curbing Industrial Overcapacity in China

Beijing, China (November 26, 2009) /ChinaNewswire.com/ — The European Union Chamber of Commerce in China today launched a unique new study examining the impact and influence of industrial overcapacity in China. Entitled Overcapacity in China: Causes, Impacts and Recommendations, the study is the first ever industry-led report on industrial capacity utilization in China and is published in partnership with Roland Berger Strategy Consultants. The sixty-page study offers a detailed analysis of the causes and effects of overcapacity across six key Chinese industries. The study has found that the recent measures taken by the Chinese authorities to curb overcapacity are a positive first step. However, the European business community in China sees further possibilities for improvement and drawing on the knowledge and experience of the European Chamber's 1,400 member companies, provides a series of recommendations on how this problem can be curbed.

Said European Chamber President Joerg Wuttke, "Our study shows that the impact of overcapacity is subtle but far reaching, affecting dozens of industries and damaging economic growth not only in China but worldwide. Domestically, excess capacity squeezes profit margins, hampers innovation and prevents the emergence of true local champions, while on the global stage its influence is clearly seen in the rise in trade tensions between China and its major trading partners. This study, then, aims to offer solutions that will benefit not only Chinese companies and Chinese industry in general, but the whole global economic system. When China prospers, we all benefit."

The study concludes that overcapacity is a major factor holding back China's sustainable economic development and traces its impact as a driving force in economic resource waste, a rise in non-performing loans (NPLs) and environmental problems. The study further argues that excess capacity in certain sectors is holding back Chinese innovation by reducing company profits, meaning that less funding is made available for R&D. Moreover, as US and European savings rates rise and imports drop, the study findings show that overcapacity is one of the drivers of the current rise in trade tensions and anti-dumping cases between China and its trade partners.

Based on these findings, Overcapacity in China: Causes, Impacts and Recommendations concludes by offering a number of suggestions on how overcapacity can be curbed by shifting policy emphases and continuing to move away from an investment- and export-led growth model. The study's recommendations include:

1. Stimulating domestic consumption and ensuring that new investment is focused on "smart" investments rather than more investments;
2. Promoting the development of a vibrant services sector – which is less resource- and energy-intensive – by encouraging competition;
3. Encouraging market-driven consolidation in sectors suffering from overcapacity;
4. Reforming pricing mechanisms to create a more balanced cost system for capital, energy and resource inputs
5. Strengthen the authorities of Central government agencies like Ministry of Environmental Protection to implement national law and crack down on local protectionism

Said Charles-Edouard Bouee, President of Asia, President & Managing Partner of Greater China, Roland Berger Strategy Consultants: "Industrial overcapacity has a strong impact on companies at every stage of the supply chain and on end users. As demand for China's exports has plummeted in the US and Europe and fixed asset investment has risen sharply in some sectors, the problem of overcapacity has been amplified. For this reason, we believe that this study is a timely and valuable addition to the ongoing discussion about the future direction of China's economic growth."

The full study is available for download at the European Chamber website – please visit www.europeanchamber.com.cn/overcapacitystudy for details.

CONTACT INFORMATION

• For further information, please contact:
  Grace Yao, Press Officer
  European Union Chamber of Commerce in China
  Phone: +86 (0)10 6462 2066 – 30
  Mobile: +86 1367 1168 084
  E-mail: gyao@euccc.com.cn