Going Global Helps Absorb Capacity: the Printing Industry Welcomes Policy Dividends

[ppzhan summary] After a period of rapid development, China has entered a period of adjustment in its economic development. The excess capacity accumulated over long-term development urgently needs to be absorbed. Recently, the relevant departments plan to introduce a "going global" support policy to help consume excess capacity and promote industry development.

After several years of rapid development, China's printing industry as a whole shows the characteristics of overcapacity, especially in the traditional printing sector. Printing prices are now very low, roughly at the level of 1991 to 1994. This is certainly the result of competition among enterprises; a great deal of capacity cannot be brought into play, and low prices have to be accepted.

The relevant departments are considering introducing a new round of "going global" support policies, including compiling comprehensive country-specific industrial investment guidelines for overseas economic cooperation zones, strengthening fiscal, tax and financial policy support, making use of the existing special fund support policies of the central government, gradually expanding the scale of funds, optimizing the structure of fund allocation, providing loans secured by overseas equity and assets, and providing financing support for enterprises' overseas investment.

Industry insiders say that resolving overcapacity is the focus of the new round of "going global" policy support. It is expected that the relevant departments will strengthen policy guidance for industries with domestic overcapacity that are in demand in developing countries, promote the transfer of energy-intensive industries such as steel and electrolytic aluminum to energy- and resource-rich regions, and promote the transfer of industries with a smaller market radius, such as cement and flat glass, to regions with vigorous infrastructure investment. At the same time, they will compile comprehensive country-specific industrial investment guidelines for cooperation zones, support domestic development zones in participating in investment, construction and management, build cross-border industrial chains, and use outbound investment to drive the export of domestic goods, technology and standards as well as the export of labor services.

Industry insiders say that in terms of improving the safeguard mechanism for investment cooperation, the relevant departments are also expected to launch new measures, especially to strengthen fiscal, tax and financial policy support. The scale of existing special funds of the central government is expected to expand. At the same time, the relevant departments will step up efforts to encourage banking financial institutions to set up branches and service networks overseas, support financial institutions in providing loans secured by overseas equity and assets, provide financing support for enterprises' overseas investment, and improve the efficiency of fund use.

New "going global" policies help multiple industries export and accelerate the absorption of excess capacity; overseas M&A may speed up

The reporter learned recently that the relevant departments are considering introducing a new round of policies to support enterprises in "going global". Analysts say that the new "going global" policies will accelerate the pace of overseas investment by Chinese enterprises, and in particular will speed up the growth of overseas M&A. With policy and financial support, Chinese enterprises "going global" will boost exports in industries such as infrastructure, electronics, automobiles and parts, and chemicals. At the same time, it will accelerate the absorption of domestic excess capacity.

Overseas M&A expected to speed up

New statistics from the Ministry of Commerce show that in 2013 China's cumulative non-financial outbound investment was USD 90.17 billion, while inbound foreign investment was USD 117.586 billion, narrowing the gap between the two to USD 27.4 billion. Analysts say that the new "going global" policies will accelerate the pace of Chinese enterprises' outbound investment, especially the growth of overseas M&A, and it is expected that this year or next year China's outbound investment will exceed inbound foreign investment.

At the recently held 12th Forum on Chinese Enterprises' Implementation of the "Going Global" Strategy, Chen Lin, Commercial Counsellor of the Department of Outward Investment and Economic Cooperation of the Ministry of Commerce, said that Chinese enterprises "going global", especially in terms of M&A, deserve attention. "Since the outbreak of the financial crisis, some changes have appeared in the M&A market," Chen Lin said. In particular, for some large resource-based enterprises, asset prices have shrunk and acquisition costs have fallen due to declining resource prices;

For some high-tech manufacturing enterprises with core competitiveness, stock values have fallen and investment value has become prominent. These enterprises, usually because of poor management, unsatisfactory profits, heavy debt burdens or strategic adjustments by their parent companies, have owners preparing to exit, which provides M&A opportunities for Chinese enterprises with relatively abundant funds. "In the future, the Ministry of Commerce will, in accordance with the requirements of the spirit of the Third Plenary Session of the 18th CPC Central Committee and the development requirements of the going global business, accelerate the transformation and building of a service-oriented government, strengthen the top-level design of the going global policy system, and provide support and guarantees for enterprises to carry out cross-border M&A and investment cooperation."

Chen Lin said that Chinese enterprises' overseas M&A is mainly concentrated in fields such as energy, mining, manufacturing, construction, public utilities and finance. Among them, energy and mining M&A occupies an important position, and M&A projects are mainly concentrated in countries and regions with relatively developed manufacturing industries, such as Australia, Canada and Peru. Chen Lin said that in the past Chinese enterprises mostly adopted the direct acquisition model, but now they have begun to indirectly control acquisition targets by acquiring overseas listed companies or purchasing publicly issued shares of listed companies.

At the overseas project release conference of this forum, a China Securities Journal reporter saw that the overseas projects involved 33 projects in 6 major categories - natural energy, mineral resources, construction projects, medical and health care, education and study abroad, and livelihood communications - with a total contract value of USD 36.8 billion.

Xu Changdong, President of the Entrepreneurs Association of the Western Returned Scholars Association and Executive Chairman of the conference, said that while policy support escorts Chinese enterprises in "going global", the overseas matchmaking project release conference set up by the forum promotes Chinese enterprises' "going global" with more pragmatic measures.

Multiple industries expected to benefit

Analysts say that in addition to boosting exports in industries such as infrastructure, electronics, automobiles and parts, and chemicals, the new round of "going global" policies will also accelerate the absorption of domestic excess capacity.

Infrastructure exports are expected to benefit. A report recently released by CICC believes that the Chinese government is currently actively encouraging enterprises to participate in the infrastructure wave in Southeast Asian countries, including high-speed rail, highways, ports and energy construction, and that with policy and financial support, Chinese enterprises are relatively likely to win bids. Chinese enterprises "going global" will directly benefit from infrastructure exports in the short term, benefit from the increase in bilateral trade brought about by improved infrastructure in the medium term, and benefit in the long term from the release of local consumer demand brought about by the economic take-off of Southeast Asia, ultimately driving the export of related Chinese industries such as electronics, automobiles and parts, and chemicals.

In addition to driving the export of related industries, absorbing excess capacity through "going global" has been endorsed by many industry insiders. Zhu Jianfang, an economist at CITIC Securities, believes that since China's steel, cement, electrolytic aluminum and shipbuilding industries have certain advantages in technology, equipment and scale, competitive enterprises can be actively encouraged to relocate overseas. Judging from the experience of developed countries and the actual situation of China's industries, the textile, footwear and headwear, automobile and machinery industries among traditional overcapacity industries, as well as emerging industries such as wind power equipment, polysilicon and photovoltaic solar cells, also have a relatively strong possibility of overseas relocation. "But in the short term, large-scale capacity output is difficult to achieve, and it is also difficult to ease the overall economic overcapacity problem," Zhu Jianfang said.

Zhou Jintao, Managing Director of the Research Department of China Securities Co., Ltd., believes that in 2012 the sales output value of China's railway transport equipment manufacturing industry was about 300 billion yuan. The output of railway equipment worth tens of billions of yuan has a relatively notable effect on easing overcapacity in specific industries, but it is still somewhat insufficient for easing overcapacity in the economy as a whole. He said, "Under the current circumstances, in addition to further expanding capacity output, only by advancing multiple means simultaneously, such as increasing domestic demand and starting from the supply side, can overall overcapacity be effectively eased."

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-361823.html