Comments on: China can outgrow overcapacity, at least for now

By: FirstAdvisor

FirstAdvisor — Sun, 31 Oct 2010 13:20:40 +0000

Wei Gu focuses her attention on new capacity, while the concern of most analysts is on the old capacity that is now obsolete, and growing more inefficient every day. China needs to develop new plant and equipment, naturally, just to remain competitive in the global market. However, many believe an equally pressing need is to close and consolidate obsolete buildings and companies. In my view, companies could strongly benefit from providing workers with a year’s income as a severance package, to prevent protests when the companies close down. That kind of investment would show a high return, since clearing the obsolete, inefficient capacity off the map of China is a very intense priority.

By: Infidel

Infidel — Tue, 08 Dec 2009 13:58:21 +0000

This sounds like cheerleading to me rather than measured analysis. Sure, China can outgrow overcapacity. The question is — how long will it take? To make the case for continued high growth in lending because if there is a pullback “bad debts will soar, private investment will be crowded out and the economic recovery may be derailed” is like saying you’ve got to keep giving a heroin addict his daily dose else he might suffer withdrawal. China already has massive overcapacity in certain key industrial sectors like steel and cement (and so do many other countries). And it is far too simplistic to compare China to a “young man with a high metabolism”. Economic excesses and mismanagement have a way of coming home to roost. Let us hope that in China’s case the payback is not too severe.

By: geofbrewer

geofbrewer — Sat, 05 Dec 2009 22:41:59 +0000

All China needs to do is examine the U.S. economy for the past sixty years or so and proceed with caution. Overcapacity becomes a problem when the local economy is unable to absorb it over time. The lenders need to be willing to think of this as a commodity with an extended shelf life. The problem will be panic. At the first sign of nervousness, a domino effect is set in motion which, as the correspondent indicated, is hard to control after the fact.