Page 178 - 2016_WhitePaper_web
P. 178
6 White Paper on the Business Environment in China
Presumably to assist in the planned consolidation of the A separate effort by the nation’s environmental ministry
industry as smaller, more inefficient operations close, the State to “raise standards for the production of cement, batteries,
Council issued guidelines in September 2010 aimed at promot- leather and heavy metals [in order to] to cut air, water and soil
ing mergers and acquisitions within the cement industry,17 and pollution” was launched two months later and stands to make
furthermore encouraged foreign investors to participate in the the lives of Chinese cement producers more interesting still
process.18 The Central Government set the target to raise the should it be effectively enforced.23
total market share of the top-10 cement producers to more than
45 percent by 2015 from 28 percent currently. Paper products are another area where China’s growth plac-
es it among the top producers in the world. According to some
In early 2011, three of the largest producers nationally (Chi- analysts, in fact, it is the largest producer of paper in the world,
na National Building Materials, Anhui Conch and Sino Mate- although their claim that the industry has “unlimited potential
rials) announced their intent to expand their production capac- for growth” does invite some skepticism.24
ities to 300 million, 300 million and 100 million metric tons by
2012, respectively.19 Nonetheless, the China Paper Association reported that
China’s production of paper products fully doubled between
Consolidation and the elimination of excess, inefficient 1995 and 2005; furthermore, this growth has been attributed to
capacity continues; a 2012 report from the NDRC indicated the use of high-tech manufacturing equipment and techniques
that in 2011 an additional 155 million tons of clinker and mill rather than the liberal use of cheap labor and energy resources
cement production capacity were eliminated, helping to curtail associated with other industries. While much of the financing
CO2 emissions.20 of these projects has been domestic, foreign joint ventures and
foreign technology has played a large role in the high efficien-
By the middle of 2012 total output growth was down to cy and productivity, as has the widespread reuse of waste paper
5 percent from a year prior—a decrease of fully 14.3 percent products.25
year-on-year. According to Xinhua, “The sharp decrease came
as economic slumps both at home and abroad have dampened According to Ministry of Commerce statistics, in 2009
market demands. The building material sector has been partic- there were 121 new foreign-invested projects in the paper
ularly weighed down due to the government keeping real estate making industry (compared to 114 in 2008), with total utilized
controls in place.”21 foreign capital reaching $1.8 billion (an increase of 17 percent
year-on-year)26.
In October 2013, the State Council issued a new plan to
“tackle chronic overcapacity problems in sectors such as steel Similar to actions taken in the cement industry, 500,000
and cement by blocking approvals for new projects and by tons of production capacity was eliminated with the closure of
making better use of the market,” the latest in the government’s inefficient operations.27
long line of measures to address the surprisingly-persistent
problem.22 Reuters explains:22 In May 2011, the Ministry of Industry and Information
Technology announced its intent for the industry to further
The long-awaited plan, published by China’s cabinet, said eliminate outdated production capacity amounting to nearly
it would focus on “establishing and perfecting” market 7.5 million tons (roughly 7.4 percent of the nation’s total pro-
mechanisms, marking a change of approach after years duction capacity) by the end of that year.28
spent trying to strong-arm the sectors into submission.
Meanwhile, a Deloitte report shows that local producers are
It would also set higher environmental and quality stan- actively pursuing mergers and acquisitions in order to expand
dards for industries and encourage the private sector to their operations; the industry is so fragmented that the ten larg-
play a role in restructuring oversized firms. est producers have a cumulative market share of only 10 per-
cent, compared to 60-70 percent in North America.29
As well as blocking new approvals, the new plan will
seek to absorb overcapacity by stimulating domestic Finally, plastics continue to be both an important and
demand, and will also offer tax incentives to encourage fast-growing sector, as well as one with relatively high partic-
firms to relocate plants overseas. ipation by foreign-invested enterprises. The average growth
of the engineering plastic sector between 2000 and 2005, for
The previous approach sought to encourage giant state- example was reported as 30 percent30—triple the growth of
owned firms to merge or swallow up smaller competitors China’s GDP. Furthermore, as China continues to develop its
but it was not successful, with industry experts high-tech and higher-value-added industries, the use of plastics,
complaining that the focus on strengthening SOEs had molds and sophisticated manufacturing will certainly play an
served to raise capacity, rather than reduce it. important role.
178 The financial slowdown did not spare this resilient industry,
although prompt attention from the government in the form of
the “Opinion of Central Committee and State Council on the
Presumably to assist in the planned consolidation of the A separate effort by the nation’s environmental ministry
industry as smaller, more inefficient operations close, the State to “raise standards for the production of cement, batteries,
Council issued guidelines in September 2010 aimed at promot- leather and heavy metals [in order to] to cut air, water and soil
ing mergers and acquisitions within the cement industry,17 and pollution” was launched two months later and stands to make
furthermore encouraged foreign investors to participate in the the lives of Chinese cement producers more interesting still
process.18 The Central Government set the target to raise the should it be effectively enforced.23
total market share of the top-10 cement producers to more than
45 percent by 2015 from 28 percent currently. Paper products are another area where China’s growth plac-
es it among the top producers in the world. According to some
In early 2011, three of the largest producers nationally (Chi- analysts, in fact, it is the largest producer of paper in the world,
na National Building Materials, Anhui Conch and Sino Mate- although their claim that the industry has “unlimited potential
rials) announced their intent to expand their production capac- for growth” does invite some skepticism.24
ities to 300 million, 300 million and 100 million metric tons by
2012, respectively.19 Nonetheless, the China Paper Association reported that
China’s production of paper products fully doubled between
Consolidation and the elimination of excess, inefficient 1995 and 2005; furthermore, this growth has been attributed to
capacity continues; a 2012 report from the NDRC indicated the use of high-tech manufacturing equipment and techniques
that in 2011 an additional 155 million tons of clinker and mill rather than the liberal use of cheap labor and energy resources
cement production capacity were eliminated, helping to curtail associated with other industries. While much of the financing
CO2 emissions.20 of these projects has been domestic, foreign joint ventures and
foreign technology has played a large role in the high efficien-
By the middle of 2012 total output growth was down to cy and productivity, as has the widespread reuse of waste paper
5 percent from a year prior—a decrease of fully 14.3 percent products.25
year-on-year. According to Xinhua, “The sharp decrease came
as economic slumps both at home and abroad have dampened According to Ministry of Commerce statistics, in 2009
market demands. The building material sector has been partic- there were 121 new foreign-invested projects in the paper
ularly weighed down due to the government keeping real estate making industry (compared to 114 in 2008), with total utilized
controls in place.”21 foreign capital reaching $1.8 billion (an increase of 17 percent
year-on-year)26.
In October 2013, the State Council issued a new plan to
“tackle chronic overcapacity problems in sectors such as steel Similar to actions taken in the cement industry, 500,000
and cement by blocking approvals for new projects and by tons of production capacity was eliminated with the closure of
making better use of the market,” the latest in the government’s inefficient operations.27
long line of measures to address the surprisingly-persistent
problem.22 Reuters explains:22 In May 2011, the Ministry of Industry and Information
Technology announced its intent for the industry to further
The long-awaited plan, published by China’s cabinet, said eliminate outdated production capacity amounting to nearly
it would focus on “establishing and perfecting” market 7.5 million tons (roughly 7.4 percent of the nation’s total pro-
mechanisms, marking a change of approach after years duction capacity) by the end of that year.28
spent trying to strong-arm the sectors into submission.
Meanwhile, a Deloitte report shows that local producers are
It would also set higher environmental and quality stan- actively pursuing mergers and acquisitions in order to expand
dards for industries and encourage the private sector to their operations; the industry is so fragmented that the ten larg-
play a role in restructuring oversized firms. est producers have a cumulative market share of only 10 per-
cent, compared to 60-70 percent in North America.29
As well as blocking new approvals, the new plan will
seek to absorb overcapacity by stimulating domestic Finally, plastics continue to be both an important and
demand, and will also offer tax incentives to encourage fast-growing sector, as well as one with relatively high partic-
firms to relocate plants overseas. ipation by foreign-invested enterprises. The average growth
of the engineering plastic sector between 2000 and 2005, for
The previous approach sought to encourage giant state- example was reported as 30 percent30—triple the growth of
owned firms to merge or swallow up smaller competitors China’s GDP. Furthermore, as China continues to develop its
but it was not successful, with industry experts high-tech and higher-value-added industries, the use of plastics,
complaining that the focus on strengthening SOEs had molds and sophisticated manufacturing will certainly play an
served to raise capacity, rather than reduce it. important role.
178 The financial slowdown did not spare this resilient industry,
although prompt attention from the government in the form of
the “Opinion of Central Committee and State Council on the
