40% of Chinese Economists Say Industrial Overcapacity Still “Severe”

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A survey from one of China’s leading think tanks found that 70% of economists believe overcapacity is still problem for at least some domestic industries.

The Industrial Economics Research Institute of the Chinese Academy of Social Sciences (CASS) released its second quarter “China Economist Hot Spot Survey” (中国经济学人热点调研) on 12 June in the periodical “China Economist.”

The CASS survey covered issues in relation to overcapacity, finding that 40.4% of economists believe there is “comprehensive and severe overcapacity” in the Chinese economy, as compared to 33.4% who believe that overcapacity is only severe in a small number of sectors.

74% of Chinese economists believe that overcapacity will ease in the next ten years, pointing to insufficient innovative capability and inappropriate government guidance as two of the root causes.

79.8% of economists believe that the innovative capability of Chinese enterprises is inadequate, their technology is lagging, while the goods they produce are unable to adapt to diversified demand.

In their opinion this leads to an oversupply of low-end products, a shortfall of high-end products, and is the fundamental reason for Chinese overcapacity.

88.3% of economists surveyed believe that “appropriate” government guidance should be used to fully employ the role of market mechanisms to expunge overcapacity.

The majority of economists believe that the role of government during the process of overcapacity removal should be the drafting of overcapacity withdrawal benchmarks, properly performing social backup work for enterprise withdrawal, guiding upgrades in enterprises and improving the legal framework for bankruptcy.

The survey of Chinese economists also points to declining confidence in growth and exports, with a consensus forecast of 6.6% for full year GDP expansion.

Only 16% of economists surveyed expect second quarter economic growth to see a year-on-year rise, while 55% expect it to hold steady with the preceding quarter.

Chinese economists also expect inflation to ease, with 55% seeing prices rising compared to the same period last year, and 25% expecting prices to hold steady.

The China Economist Price Index came in at 135, for a decline of 9 points compared to the last period, for a forecast of easing price growth.

 

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