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Overcapacity a time bomb for China's economy


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2015 Sep 28, 8:58am   1,230 views  1 comment

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China has narrowly escaped major financial crises for over two decades. But the good times may soon be over - and not because of the recent stock market crash which has spawned debates about whether the country faces a serious economic crisis.

While the Chinese economy is unlikely to crash anytime soon, China nonetheless faces a high probability of being the next major power to face an economic collapse and is now at a tipping point.

One major reason is industrial overcapacity. Overcapacity is not new in China, but in sectors such as iron and steel, glass, cement, aluminium, solar panel, and power generation equipment, the overcapacity rate has recently surpassed 30 per cent, the threshold at which overproduction may trigger loan defaults by companies that have borrowed and then watched their profits fall.

Industrial overcapacity has become a time bomb that threatens the Chinese economy because it has led companies to take on debt to repay loans.

The combination of economic slowdown, excess production in manufacturing and rising debts at the macroeconomic level may cause a massive wave of firm closures and bad loans.

If this bomb detonates, the repercussions could be extraordinary. Because China does not have the mature social safety net of a country like Japan, and also lacks the political stability of the United States, it could face not only an economic blow-up but also serious social and political upheaval.

More: http://www.scmp.com/comment/insight-opinion/article/1862024/overcapacity-time-bomb-chinas-economy

Related: Profits for industrial companies in China dropped 8.8 percent in August, compared to the previous year, Bloomberg reported Monday. It was the biggest fall since October 2011, when the Chinese government first published such data. Chinese coal, oil and gas and metal companies had the greatest losses, information from the National Bureau of Statistics showed.

http://www.ibtimes.com/china-stock-market-crash-2015-coal-oil-gas-profits-tumble-amid-weakened-yuan-2116568

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1   🎂 Tenpoundbass   2015 Sep 28, 1:51pm  

China has at least a good solid Decade of eccnomic growth just sitting in their ghost cities untapped.

If China decides to nationalize those and have the government take control of them there's a whole second wave ecconomy sitting just in the RE Ghost market.

Their Ghost market that has taken us 8 years to disolve. China's will take 20.

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