Chronic disease of overproduction may threaten China’s hard-won economic growth

By Xiao Xin Source:Global Times Published: 2018/1/21 23:28:39

Amid encouraging news about China's economy, which achieved a forecast-beating expansion of 6.9 percent for 2017, there are signs that the economy is still suffering from a chronic disease: overproduction.

Observers believe that curbing excess supply to allow for real growth should be an economic priority from this year forward.

Data from the China Academy of Information and Communications Technology showed that shipments of smartphones in the domestic market posted a record monthly drop in December, plummeting 32.5 percent year-on-year to 42.61 million units. The plunge apparently signified that China's market for smartphones, which has for years been hailed as a powerhouse for the industry's global growth, has hit the wall.

Nonetheless, many smartphone makers have continued churning out products, and their component suppliers, particularly local companies making OLED displays, even have plans to scale up production.

Other than prompting a strategic shift for major domestic phone vendors that have sought to expand into overseas markets, the shrinking numbers should serve as a wake-up call for local phone manufacturers and handset component makers. All of them, in particular the lesser-known ones, must be alert to the risk of a market glut that could put many out of business.

An even more glaring example is the country's bike-sharing sector, which rocketed to global fame to the extent that shared bikes have been termed one of China's "four great new inventions" in modern times. But the industry has increasingly turned out to be awash in bloated supply that weighs on the economy.

The bike-sharing frenzy has flooded streets in major Chinese cities with huge piles of dockless bicycles, posing an increasing problem for urban management and pedestrians. An article published by the Workers' Daily in December revealed that owing to a collapse in funding that led to the failure of many bike-sharing start-ups in China, users have been unable to reclaim deposits of more than 1 billion yuan ($155.18 million).

In addition, bicycle producers which used to churn out bikes 24/7 to fuel the boom have fallen victim to the industry's woes.

As many cash-burning and ride-subsidizing bike rental firms went bankrupt, they failed to pay their suppliers.

All this dramatically illustrates a recurring problem that China's economy faces: the emergence of a business opportunity that quickly translates into overproduction. To cure this chronic disease, a business community that has long been accustomed to flocking into markets where undifferentiated strategies prevail needs a rethink.

Finally, the authorities should assume more responsibility in guarding the economy against the recurring boom-bust cycles that are caused by excess production.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn

Posted in: EYE ON ECONOMY

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