China’s top 10 failing industries

China’s top 10 failing industries

Staff Reporter

2013-10-17

With some industries in China possibly facing bankruptcy, the Party-run Beijing Youth Daily interviewed several market observers and experts to compile a list of the top ten industries in China that are likely to face a shutdown. The first such sector could be that of group-buying websites. The group buying business model gained popularity when it was first introduced in March 2010. But several noted group buying sites, such as Tuanbao and Juqi, have been experiencing operational difficulties.As of June 2013, 4,670 of the total 6,218 group buying websites operating across China have closed shop, data show.

More group buying websites will face closure as the top five group buying sites account for more than 90% of market share, while the remainder struggle to survive with less than one percent of the market, said an industry insider.

Shipbuilding corporations could also face insolvency this year. When China’s shipbuilding industry entered its golden era in 2004, the number of shipbuilders grew rapidly. However, the global shipbuilding market’s performance has been lackluster due to the global financial crisis.

About 1,000 shipbuilding businesses, private ones in particular, have shut down since last year, mainly because of a lack of funding.

Taizhou in Zhejiang province was a world renowned base for manufacturing small and medium-sized boats, having more than 190 shipbuilding factories.

Local businessmen in the industry estimated that a large number of small shipbuilders would have to close down during the beginning of the back half of this year.

The third industry facing tough times is China’s steel and iron industry. Private companies have been considering closure due to a lack of funding, while state-run firms can only survive based on support lent by government’s capital.

An industry researcher said excess capacity has resulted in declining profitability levels and the creation of a deficit. He added that this industry was no longer highly profitable, but could survive based on small profits.

Some experts pegged the market value of the LED sector at 30 billion yuan (US$4.9 billion). However, excess capacity has led to price battles, which will wipe out 60% of downstream factories in the next two to three years.

Small and medium-sized real-estate firms are also in danger. As large real-estate developers continue to acquire land, it has become increasingly difficult for small and medium-sized businesses to survive. A China Real Estate Association official predicted that 30% of developers on mainland China would file for bankruptcy, bringing down the total number of developers from 50,000 to 35,000 during the next three years.

Home improvement retailer Orient Home Center, which was the largest of its kind in China, is currently filing for bankruptcy. American retailer Home Depot has already closed all its physical stores in China. B&Q of the United Kingdom also cut its store count to about 40 from the original 60.

Market observers are of the view that their closure could be attributed to their old-fashioned style of operating. In addition, some foreign firms have failed to understand Chinese consumers’ needs.

The seventh industrial sector facing tough times is the shipping business. The losses suffered by the shipping industry are worsening because of the global economic downturn and excess capacity. State-run shipping companies are only being sustained by government subsidies.

Trust companies in China also face closure. The scale of trust assets in China exceeds 1 billion yuan (US$16.37 million). However, a bubble has been created in the industry due to the surging value of assets.

A scholar stated that the trust industry was facing difficulties in development and because of other potential risks. Trust firms need to take a serious note of these problems if they wanted to ensure continued and healthy growth in the sector.

The main bottleneck faced by third-party financial management firms is high costs levied by banking regulators and third-party payment houses. Market observers said only companies that did not have sufficient professional knowledge would be eliminated first.

The Beijing Youth Daily lastly mentioned the private equity industry. As it had become difficult for private equity companies to raise funds, many are facing a shutdown, the newspaper pointed out.

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: