Going Global Policy Targets Overcapacity: A New Window for the Printing Industry

China has moved into an economic adjustment phase, and the excess capacity built up over years of expansion now needs to be absorbed. Recently, authorities have been preparing going-global support policies to help consume that capacity and support industry development.

After rapid growth in recent years, China's printing sector as a whole is marked by overcapacity, particularly in traditional printing. Printing prices are now very low, roughly at the level seen from 1991 to 1994. Industry players attribute this to intense competition: much capacity cannot be utilized, so low prices have to be accepted.

Relevant departments are considering a new round of going-global support measures. These include comprehensive country-specific industrial investment guidelines for overseas economic cooperation zones, stronger fiscal, tax and financial policy support, use of existing central government special funds, gradual expansion of fund scale, optimization of fund allocation, loans secured by overseas equity and assets, and financing support for overseas investment by enterprises.

Industry insiders say resolving overcapacity is the focus of the new going-global policy support. Authorities are expected to strengthen policy guidance for industries with domestic overcapacity that are in demand in developing countries. This includes encouraging energy-intensive sectors such as steel and electrolytic aluminum to move to energy- and resource-rich regions, and industries with a smaller market radius such as cement and flat glass to shift to areas with vigorous infrastructure investment. They are also expected to compile comprehensive country-specific industrial investment guidelines for cooperation zones, support domestic development zones in investment, construction and management, build cross-border industrial chains, and use outbound investment to drive exports of domestic goods, technology and standards, as well as labor services.

Insiders also say new measures are expected to improve the investment cooperation safeguard mechanism, especially fiscal, tax and financial policy support. The scale of existing central government special funds is expected to grow. Authorities will also encourage banking financial institutions to set up overseas branches and service networks, support financial institutions in providing loans secured by overseas equity and assets, offer financing for enterprises' overseas investment, and improve the efficiency of fund use.

New Going-Global Policies to Boost Exports Across Sectors and Speed Overcapacity Absorption; Overseas M&A May Accelerate

The reporter recently learned that relevant departments are preparing a new round of policies to support enterprises going global. Analysts say the new policies will accelerate Chinese enterprises' outbound investment, especially overseas M&A. With policy and financial backing, going global will boost exports in infrastructure, electronics, automobiles and parts, and chemicals, while accelerating the absorption of domestic excess capacity.

Overseas M&A Expected to Accelerate

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

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 Chinese enterprises going global, especially in M&A, deserve attention. Chen said that since the financial crisis, some changes have appeared in the M&A market. 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 often face poor management, unsatisfactory profits, heavy debt burdens or strategic adjustments by parent companies, leading owners to prepare to exit and creating M&A opportunities for Chinese enterprises with relatively abundant funds. Chen said the Ministry of Commerce will, in line with the spirit of the Third Plenary Session of the 18th CPC Central Committee and the development needs of going-global business, accelerate the shift toward a service-oriented government, strengthen top-level design of the going-global policy system, and provide support and guarantees for cross-border M&A and investment cooperation.

Chen said Chinese enterprises' overseas M&A is mainly concentrated in energy, mining, manufacturing, construction, public utilities and finance. Energy and mining M&A holds an important position, with projects mainly concentrated in countries and regions with relatively developed manufacturing industries, such as Australia, Canada and Peru. Chen noted that Chinese enterprises previously mostly used direct acquisitions, but now they have begun to indirectly control targets by acquiring overseas listed companies or purchasing publicly issued shares of listed companies.

At the forum's overseas project release conference, a China Securities Journal reporter saw that the overseas projects covered 33 projects in six major categories—natural energy, mineral resources, construction projects, medical and health care, education and study abroad, and livelihood communications—with 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 going global, the forum's overseas matchmaking project release conference promotes going global with more pragmatic measures.

Multiple Industries Expected to Benefit

Analysts say the new round of going-global policies will not only boost exports in infrastructure, electronics, automobiles and parts, and chemicals, but also accelerate the absorption of domestic excess capacity.

Infrastructure exports are expected to benefit. A recent CICC report says the Chinese government is actively encouraging enterprises to participate in Southeast Asia's infrastructure wave, including high-speed rail, highways, ports and energy construction. With policy and financial support, Chinese enterprises have a relatively high chance of winning bids. Going global will directly benefit infrastructure exports in the short term, benefit from increased bilateral trade supported by improved infrastructure in the medium term, and benefit in the long term from local consumer demand released by Southeast Asia's economic take-off, ultimately driving exports of related Chinese industries such as electronics, automobiles and parts, and chemicals.

Beyond driving related exports, absorbing excess capacity through going global has won support from many industry insiders. Zhu Jianfang, an economist at CITIC Securities, believes China's steel, cement, electrolytic aluminum and shipbuilding industries have certain advantages in technology, equipment and scale, so competitive enterprises can be actively encouraged to relocate overseas. Based on developed-country experience and China's industrial reality, traditional overcapacity sectors such as textiles, footwear and headwear, automobiles and machinery, as well as emerging industries such as wind power equipment, polysilicon and photovoltaic solar cells, also have relatively strong potential for overseas relocation. 'But in the short term, large-scale capacity output is difficult to achieve, and it is also difficult to ease overall economic overcapacity,' Zhu said.

Zhou Jintao, Managing Director of the Research Department of China Securities Co., believes that in 2012 the sales output value of China's railway transport equipment manufacturing industry was about RMB 300 billion. The output of railway equipment worth tens of billions of yuan has a relatively notable effect on easing overcapacity in specific industries, but remains somewhat insufficient for easing overcapacity in the economy as a whole. He said, 'Under 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