Some Chinese sectors face serious challenges

Although economic growth is slowing, the Chinese business environment remains generally stable. However, some sectors are facing troubles.

Madrid - 28-nov-2013

Although economic growth is slowing, the Chinese business environment remains generally stable. However, some sectors are facing troubles and, while larger state-owned companies are usually financially healthy, more caution is recommended when dealing with small and medium-sized private businesses, as many of them - even those active in well-performing industries - often suffer from limited financing facilities.

 

Agriculture

Healthy consumption growth across most agricultural subsectors. High local and global market prices for many of China‘s core agricultural products will boost future production volumes. This is a highly subsidised sector and listed as very important in the twelfth Five-Year Plan period [2011-2015].

 

Food and drink

China is the fastest growing food and beverage consuming market of all major Asian countries. The expected growth rate of the food and beverage market in the next three years is between 2.7 % and 3.6 %. However food safety, hygiene and poor quality control remain issues.

 

Pharmaceuticals and healthcare

China‘s pharmaceutical market is the third largest in the world. The government will continue to increase its investment and expects to lift GDP expenditure on healthcare from 4 % in 2011 to 6-7 % in 2015. The pharmaceuticals distribution sector has been consolidating in recent years Bribery scandals have harmed large pharmaceutical sales in China. Investigation of bribery has spread from foreign firms to include domestic pharmaceutical firms as well.

 

ICT/Electronic machinery

The Chinese electronic machinery sector sustained growth in 2012. China has surpassed the US as the world’s largest PC market. More sluggish demand in the IT sector resulting from the domestic economic slowdown and weakness of export markets.

 

Solar

Affected by poorer European demand and future high customs taxes as the result of anti-dumping and subsidy investigations launched by the US and the EU. Overcapacity and lack of vital skills.

 

Construction & construction materials

Consumption will decrease as the government introduces measures to cool the bubble in the residential property market.

 

Steel

China remained the world’s largest steel producer in 2012. Overcapacity and huge stockpiles are still major challenges and the main reasons for the continuing deterioration in this industry. Together with rising input costs these are reducing steel producers´ margins. Financing in the steel sector has become more difficult, as banks slash loans further due to increasing bad debts and the deteriorating market outlook.

 

Shipping

Overcapacity and lower demand continue to plague the market. The growth forecast for 2013 is slower than in the past decade. Expected taxation reform will be launched to reduce the tax burden of domestic shipping companies.

 

Coal

Weakening coal demand as a result of slower economic growth and rising public anger over air pollution from coal burning. Overcapacity is a serious problem generated from past overinvestment in the coal sector. Due to falling coal prices, the net profits of large and medium sized coal producers decreased by more than 40 % in 2012. Market condition will not improve in the short term.

 

Paper

Slower growth in demand while overinvestment in production has led to overcapacity. Some small and medium-sized businesses engaged in producing and trading pulp & paper products have had to leave the market due to the economic slowdown. Lower investment in capacity has led to a better situation in 2013. However, balancing the supply/demand relationship will take at least two years.

 

About Crédito y Caución

Crédito y Caución has been the leading credit insurance provider for Spain's domestic and export sectors ever since it was founded in 1929. With a market share of 54%, for over 80 years the Company has contributed to the growth of businesses, protecting them from payment risks associated with credit sales of goods and services. Since 2008, Crédito y Caución is Atradius Group’s operator in Spain, Portugal and Brazil.

Atradius Group is a global credit insurance company active in 45 countries, with has access to credit information on more than 100 million companies worldwide. The global operator consolidates its activity within the Catalana Occidente Group.

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