Building materials industry to develop solutions to excess capacity is the key

On March 8, 2013, deputy director of the Financial and Economic Committee of the National Committee of the Chinese People's Political Consultative Conference, former Minister of the Ministry of Industry and Information Technology, and Li Yizhong, president of the China Federation of Industrial Economics, said: “China’s steel, cement, plate glass, wind power equipment, photovoltaic cells, polysilicon, etc. The industry operating rate is generally less than 75%, and there is a serious problem of overcapacity. Among them, the cement industry operating rate is about 73%, polysilicon, photovoltaic cell industry operating rates were only 35% and 57%, respectively.” He also analyzed the construction materials industry including The issue of excess industrial capacity and gave specific recommendations.

Four major causes of building materials industry overcapacity Zhang Ping, director of the National Development and Reform Commission, said recently that excess capacity is particularly prominent in traditional industries such as steel, cement, and flat glass. Internationally, it is generally considered that the utilization rate of these industries is 80% to 85%, but the utilization rate of these industries in China is about 70% to 75%.

The information released by the Ministry of Industry and Information Technology in February showed that the overcapacity in the building materials industry in China has not yet been contained. At the end of 2012, the national cement and flat glass production capacities reached 3 billion tons and 1.04 billion weight boxes, respectively, and the industrial capacity utilization rate dropped to 72.7% and 68.3% respectively. As of December 2012, the inventory value of the cement manufacturing industry was 79 billion yuan, an increase of 1.8% year-on-year; the inventory value of building materials such as brick and stone, stone, etc. was 59.0 billion yuan, an increase of 15.7% year-on-year; the inventory value of glassware manufacturing industry was 31.9 billion yuan. Increased 15.8% year-on-year.

Li Yizhong summarized the following four factors for the causes of overcapacity, including the building materials industry: First, the overall technical level of the industry is the main cause of excess capacity. The current surplus is backward production capacity, not advanced surplus. Second, the level of business decision makers and operators is not high, and the backwardness of the decision-making mechanism and operating mechanism is also the cause of excess capacity. Many enterprises do not have strict, scientific, and erroneous decision-making procedures, and rash decisions and blind investment have led to the current widespread problem of low-level redundant construction. Second, from the social perspective, market supply and demand information is misinformed. Some market supply and demand information is distorted, one-sided, and somewhat misleading. When the economy is overheated, some products can be sold, and producers feel that the market prospects are good and they can continue to produce. Finally, some local governments have been lopsidedly pursuing the growth rate of GDP, coupled with low levels of their own decision-making, inadequate decision-making mechanisms, and blindness in their investment projects.

In addition, some experts stated that more and more companies are being deeply influenced by local governments, pursuing the maximization of scale, in exchange for higher administrative status and greater local protection rights, rather than maximizing profits, causing There is no expansion of borders.

The overcapacity caused by the overcapacity in the building materials industry has caused the overcapacity in building materials and other industries to be an indisputable fact. Li Yizhong believes that the most direct threat to the serious overcapacity is to cause poor corporate performance.

In fact, Li Yizhong’s judgment has been verified in various aspects.

According to the data previously released by the Ministry of Finance, in 2012, profits of state-owned and state-owned holding building materials companies across the country showed a larger year-on-year decline. Among them, the total profits of state-owned and state-controlled building materials companies such as cement and flat glass decreased by 32.8% and 66.6% respectively year-on-year. Hebei Province Building Materials Industry Association released statistical data show that in 2012, Hebei building materials enterprises above designated size achieved a 21.8% year-on-year decline in profits, of which the cement industry profits fell by 58.9% year-on-year, flat glass industry profits increased substantially. Statistics released by the Guangdong Building Materials Industry Association show that in 2012, profits from the building materials industry in Guangdong fell by 5% year-on-year. According to statistics released by the China Cement Association, the profits of the cement industry in 2012 decreased by nearly 50% year-on-year.

In addition, a lot of building materials companies also realized a substantial decline in profits in 2012. According to preliminary calculations, net profit of Ningxia Building Materials in 2012 decreased by 75% to 88% year-on-year, and Fujian Cement's net profit in 2012 decreased by 79.17% to 75.17% year-on-year, and Chuanrun's 2012 net profit in cement and wind power business decreased by 72.96% year-on-year.

Qiao Longde, chairman of the China Building Materials Federation, said that under the background of increasing total product quantity, profits have fallen sharply, indicating that the previous growth mode was driven by scale operations, and the building materials industry urgently needs to change its development mode.

The building materials industry needs to overcapacity. There is a problem of overcapacity in the building materials and other industries. Li Yizhong said that according to different industries, it is necessary to tackle both the symptoms and the problems. He proposed the following four suggestions:

First, strive to expand domestic demand, improve product quality, and open up new markets. For example, iron and steel are used for construction and bridge construction in our country. Steel structures, cement, and concrete each have their own advantages and disadvantages. Considering the same conditions, we can consider using more steel. At the same time, companies should also improve product quality. At present, there are many varieties of Chinese enterprises that have not yet been manufactured and must rely on imports to meet domestic demand. If companies can improve product quality, they can not only meet the needs of the domestic market, but also export foreign exchange.

Second, eliminating backward excess capacity. Focus on technological transformation, restructuring and mergers. For enterprises that have certain capabilities and markets but whose technological level is not too advanced, they must adopt technological transformation to bring the varieties, quality, energy consumption, material consumption, and environmental protection to a new level. In addition, it is necessary to increase industry concentration and promote the merger and reorganization of small and medium-sized enterprises by advanced companies and large enterprises.

Third, carry out industrial transfer. The so-called industrial transfer is not transferred from developed regions to underdeveloped regions, but is to adjust existing stocks.

Fourth, the most fundamental thing is to block the source. One cannot turn off small businesses on the one hand and build many new ones on the other. We must increase the barriers to high energy consumption, high pollution, and overcapacity industries in the iron and steel industry, cement and building materials, flat glass, shipbuilding, and photovoltaic cells. The threshold is quality, variety, energy conservation, emission reduction, safe production, and information technology. Raising the threshold requires strict government checks. Prior to this, the central government had been restricting the blind expansion of industries with high energy consumption, high pollution, and overcapacity, and eliminating backward production capacity. However, realistically speaking, the intensity is still not enough, there is no consistent one, resulting in a large number of new companies built up, and small businesses are not closed down, we should take targeted measures to rely on market exit mechanism as soon as possible to eliminate small businesses.