Thursday, November 26, 2009

Overcapacity in China

If there's one factor that destroys profitability, it's ''overcapacity''.

Take the Dubai property market for example - Skyscrapers and man-made islands:
way too many speculators, very few actual users, and all of it supported on a mountain of debt.
That's just asking for trouble.

Everyone has heard of China being the ''factory'' of the world, after all - everything seems to be ''Made in China''.

I've been scanning google links on the overcapacity in China's Industrial sector.
China Overcapacity Wreaks Global Harm, EU Group Says
Steel Guru : Strong demand leading to steel overcapacity in China
China's September data suggest that the long-term overcapacity ...
Reasons for concern: Wafer thin margins + surplus industrial capacity + massive debt levels
That's going to be one '''toxic''' cocktail at a time when consumers in the developed world are looking to ''save'' rather than ''consume''
Long term opportunities aside, it's time the whole world starts to save more, and pay down debt.
A sustainable long term recovery will be based on
  • 'savings led investment'
  • adequate risk capital for lenders
  • fair and non manipulative accounting practices
  • a sound banking system.
Stimulus packages, bailout packages and questionable accounting practices are not the way out of this mess!

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