Overcapacity: "Cancer" in China's economic development

Abstract Since the beginning of this year, the contradiction of overcapacity in China's economic operation has become increasingly apparent, and it has become a major test that must constrain the "upgraded version" of China's economy. How to treat the current overcapacity? How to resolve and promote China's economic development...
Since the beginning of this year, the contradiction of overcapacity in China's economic operation has become increasingly apparent, and it has become a major test that must constrain the "upgraded version" of China's economy. How to treat the current overcapacity? How to resolve and promote the transformation of China's economic development mode?

Overcapacity: "Cancer" in China's economic development

On the 2nd, the Ministry of Industry and Information Technology announced the second batch of enterprises in the industrial sector to eliminate backward production capacity in 2013, involving 67 enterprises across the country. The phase-out projects are all low-end papermaking industries. The list of the first batch of enterprises that the Ministry of Industry and Information Technology announced before the elimination included 1,294 companies in 19 industries including steel.

Miao Wei, Minister of the Ministry of Industry and Information Technology, said that in recent years, China has stepped up efforts to eliminate backward production capacity. “But frankly, the speed of new capacity is much faster than the elimination of outdated production capacity, so it brings about the problem of overcapacity.”

Overcapacity has become a "cancer" for China's economic development. According to the survey data of the National Bureau of Statistics, the average industrial capacity utilization rate at the end of the second quarter of this year was only 78.6%, and the idle capacity was as high as 21.4%.

It is understood that the internationally recognized normal capacity utilization rate is about 82%. At present, China's steel, cement, electrolytic aluminum, coke, shipbuilding, photovoltaic, engineering machinery and other industries have a maximum capacity utilization rate of only 75%, and photovoltaics is only 60%. Due to the rapid expansion of production capacity in the construction machinery industry, demand has fallen sharply. Capacity utilization is less than half.

Under the influence of overcapacity, the contradiction between the oversupply of industrial products in China has intensified, and the downward pressure on prices has continued to increase. In the first half of the year, the ex-factory price of industrial producers fell by 2.2% year-on-year, which has been falling for 16 consecutive months.

Taking steel as an example, in 2012 China's steel production capacity was as high as 1 billion tons, but the market demand was only 720 million tons. Li Xinchuang, deputy secretary general of China Steel Association, pointed out that overcapacity has become a "life and death" in the steel industry. “The current steel market is in a downturn, and the profits of the entire steel producers are at their lowest. If the output cannot be effectively controlled, there will be companies with tight capital chains falling first.”

Absolute excess, structural excess

Feng Fei, director of the Industrial Economics Research Department of the Development Research Center of the State Council, said that the overcapacity in the late 1990s was similar to the current situation. On the one hand, it was affected by the external financial crisis, which caused the problem of overcapacity in China to increase sharply. On the one hand, the danger of two overcapacity is very large.

"Overcapacity itself is not terrible. 'Oversupply' is a normal performance of the market economy." Zhu Baoliang, director of the Economic Forecasting Department of the National Information Center, told reporters that the current overcapacity is analyzed and found not caused by insufficient demand, but by some industries. Absolute excess and structural excess.

According to statistics, not only the steel production capacity has far exceeded the peak consumption that may occur in the next few years, but the cement industry also has the same problem. The data shows that China's cement production capacity last year has been close to 3 billion tons, but the demand is only 2.2 billion tons, and the cement capacity utilization rate is lower than 75% for a long time. Overcapacity in the steel, cement and other industries has been absolute and long-term.

At present, some strategic emerging industries, such as photovoltaic cells, wind power equipment, and polysilicon, have also experienced overcapacity. According to statistics, in 2011, the capacity of solar photovoltaic module has reached 35GW, accounting for 60% of global production capacity, but the output is only 21GW, the capacity utilization rate is 60%; the wind power equipment capacity is 30GW-35GW, the output is 18GW, and the capacity utilization rate is lower than 60. %.

In addition, in recent years, concentrated investment has caused capacity growth to be too fast, and new capacity is still being released and formed.

It is worth noting that China's current overcapacity is concentrated on low-level repetitive investments. Xu Xianchun, deputy director of the National Bureau of Statistics, pointed out that at present, China's low economic level of overcapacity and high-end manufacturing capacity shortages coexist, and the production capacity of basic raw materials such as steel has been absolutely surplus, but a large number of key equipment and core components are still heavily dependent on imports.

Adjusting the structure by means of reform and promotion

Zhu Baoliang pointed out that the current overcapacity is mainly concentrated in the heavy chemical industry and large enterprises. It is a capital-intensive industry and has strong financial and tax support for local governments. This round of resolving work will face severe challenges.

Feng Fei said that the government's administrative power to promote industrial development is an important reason for this round of overcapacity. “Local government administrative forces are leading the development of the industry, especially with attractive means such as land, mineral resources and investment support, to attract large investment projects, so that some enterprises pay more attention to the resources given by local governments outside the investment projects, resulting in investment behavior. Alienation. From the perspective of the central government, the administrative approval system for investment projects has its drawbacks and distorts investor behavior."

"On the one hand, we must change our thinking, treat both the symptoms and the root causes, and adopt a combination of short-term measures and long-term correction mechanisms." Feng Fei pointed out that the transfer of local government land and the transfer of mineral resources should be open, transparent and compliant. On the other hand, it is necessary to promote bankruptcy and industrial restructuring, accelerate the withdrawal of some enterprises through the implementation of energy-saving and emission reduction, and at the same time establish an exit assistance system to re-employ and train unemployed workers.

Niu Li, director of the Macro Research Office of the Economic Forecasting Department of the National Information Center, believes that it is necessary to use market mechanisms to resolve overcapacity, reduce direct intervention and control of the government, especially local governments, and change the system of local officials to promote GDP. "Change the existing fiscal and tax incentive system, speed up resource tax reform, speed up the collection of environmental protection taxes, accelerate the pace of mergers and acquisitions, and increase industrial concentration."

"The key to resolving overcapacity is to rely on reforms to further decentralize power. Any market and enterprises can decide to hand over to the market and enterprises." Zhu Baoliang pointed out that to resolve overcapacity must rely on the transformation of economic growth mode, to eliminate backward production capacity. Opportunities, speed up the pace of restructuring, accelerate the development of strategic emerging industries and service industries, and foster new growth points for the Chinese economy.

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