China Plans Faster Capacity Cuts Even as Growth Slows

China Plans Faster Capacity Cuts Even as Growth Slows

China will push ahead with efforts to cull excess industrial capacity a year earlier than planned even as economic expansion slows, and will promote spending on information products to stabilize growth, an official said.

The government will complete by the end of 2014 its overcapacity reduction plan for the five years through 2015, and will seek to cut further outdated capacity, China National Radio said yesterday, citing Industry Minister Miao Wei.Premier Li Keqiang has avoided economy-wide stimulus and instead issued targeted policies, including tax breaks and support for small companies, while curbing overcapacity and reining in financial risks to aid economic restructuring. Industrial output rose more than economists estimated in July, the National Bureau of Statistics said Aug. 9, adding to signs the economy is stabilizing.

“One of the long-term issues that China has faced is excess investments in some segments, and this results in having too much productive capacity, and it’s inefficient,” said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. Government efforts are “important as part of a larger effort to provide a stronger foundation for long-term growth in China, and stability.”

The process is in its earlier stages, and it “remains to be seen how far they’ll go with this,” Hensley said in a phone interview yesterday. Still, the government is doing more than was expected, he said.

‘Reasonable’ Growth

Industrial growth “remains in a reasonable range,” although economic growth faces pressures to slow and small businesses may experience larger difficulties in the second half, Miao said, as cited by the official broadcaster. “Economic growth will be driven more by consumption,” he said.

The State Council, the cabinet, will soon issue a new plan to encourage spending on information products and services in what Miao said may be a “new breakthrough” in boosting growth after housing and automobile sales took off, National Radio reported. Information consumption may expand by an annualized 20 percent to exceed 3.2 trillion yuan ($523 billion) in 2015, Miao said.

Miao said his ministry will promote “information consumption platforms,” such as business-to-consumer website operators such as 360buy Jingdong Inc. and consumer-to-consumer websites such as Alibaba Group Holding Ltd.’s Taobao Marketplace.

Miao’s Ministry of Industry and Information Technology in 2011 issued targets for eliminating outdated capacity in 19 key industries, including 48 million tons of steel and 370 million tons of cement.

The agency said it seeks to finish the plans one year ahead of schedule to “make a new contribution” to cutting overcapacity and reducing emissions, according to a March 29 statement on its website.

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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