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INDRANEEL SEN GUPTA
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INDRANIL SEN GUPTS DIGGS INTO THE HARD CORE FACTS OF THE ECONOMY AND BRINGS THEM TO LIGHT. I AM A COST ACCOUNTANT AND MBA IN FINANCE.
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  • OVERCAPACITY BUBBLE TO BURST OUT  1 comment
    Oct 14, 2009 1:46 PM
    Many automakers from China, the world’s largest car market, are busy in making agreements with Indian companies to promote their products in India. Chinese carmakers such as Chery Automobile, China FAW Group, Great Wall Motor Co and Zotye Auto are looking to get a foothold here after setting up operations in Latin America, Eastern Europe, Africa and Russia.the prime reason behind such a move is the falling sales in overseas markets like the US, Europe and other countries, coupled with pressures back home to maintain the productivity of the shop floors and show consistent growth in sales and exports, many Chinese auto companies are looking towards India as a potential market.
     
    China's car sales crossed the one-million mark for the seventh month in a row in September as sales rose by 83.62% from a year earlier to 1.15 million units. As per International Metalworkers' Federation (IMF) excess automotive production capacity in China will soon trigger a surge in vehicle exports, putting an even tighter squeeze on prices in the auto industry worldwide.
     
    In order too boost the automobile sector the Chinese government reduced vehicle taxes and even introduced auto subsidies. In January, China dethroned the US as the largest car market for the first time to make the world's third largest economy become the world's largest car market.
     
    In the first half, US vehicle sales plunged by 35% to 4.8 million. So it is well clear that China is running at overcapacity and trying every means to penetrate into other countries to boost up sales.
     

     
    Steel is another prime sector where China is pushing hard its production. Steel production in China is growing faster than consumption, which has resulted in surplus situation. Demand has come down marginally in China, which is why steel mills have started pushing their products into other markets. Steel imports jumped 9% to 8,00,000 tonne in August from the year-ago period. The landed price of Chinese steel is around $40-50 per tonne cheaper than Indian products of some grades. According to the China Iron & Steel Association, China crude steel output in September rose to a record monthly high again after hitting 51.65 million tonnes in the month before. Steel stocks reached 11.46 million tonnes in this March then declined to 9.09 million tonnes in September but roared again to this year record of 11.91 million tonnes in early October. Main reason behind it was the mounting up crude steel production. Over-capacity and the speculative nature of the Chinese commodity markets are the main challenges facing the Chinese metals industry. We are not only getting the over capacity in these two sectors but in all sectors across China.

    We expect consolidation within the Chinese aluminium industry as a result of the collapse in both domestic and export demand, leading to the closure of some smaller smelters - representing 48% of capacity by January 2009
     

     
    For all these reasons the China is pushing its all products to other countries. So this forced United States to launch a probe to look into slapping penalties on imported Chinese steel pipes. The move came less than a month after US President Barack Obama imposed punitive duties on Chinese-made tires, igniting the first trade spat of his presidency. Indian steel producers have also requested Indian government to look into the steel import made by China.
     
    At the same time China's cabinet has laid out detailed plans to curb overcapacity in industries such as steel, aluminium, cement and wind power, warning that the country's economic recovery could otherwise be hampered. In other words it will ruin China’s much called capitalism. Over capacity have also reduced the profitability. Chinese industrial company  profits were down 10.6% on year to the end of August, with state-owned industrial companies major beneficiaries of the stimulus efforts to date  seeing profits off 25.2%.
     
    China is running with such huge over capacity that even World Bank is seeking cooperation with China, encouraging it to use a portion of its huge foreign reserve for equity investment in developing countries, and to shift its production surpluses to Africa. Finally I would like to depict the picture that over capacity will result to what is happening in Indian Aviation Industry
     
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  • Plant the seeds
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    Doesn't the chinese brands need to improve a lot to seriously penetrate the Indian market.
    14 Oct 2009, 02:26 PM Reply Like
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