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2009-11-27 | All chapters

EU Chamber advises reforms in service sector to curb overcapacity
Global Times, 27th November 2009

The European Union Chamber of Commerce in China (EUCCC) said in a report Thursday that boosting consumption and strengthening the service sector through looser regulation of foreign invested and private firms could ease overcapacity.

"We assume production equals demand, otherwise they end up in inventory," said Jörg Wuttke, president of EUCCC at a press conference publishing the report. In this sense, many industrial sectors suffer from overcapacity, and six industries including steel, cement and chemicals are "severely affected" by overcapacity currently, according to the report.

The country's economy has been on the recovery track. In the third quarter, its GDP grew 8.9 percent and most market watchers expect it to surpass 9 percent in the fourth quarter. However, massive stimulus packages and excessive liquidity, which contributed to the strong recovery, to a certain extent also led to overcapacity, said the report.

In 2005 and 2008 when overcapacity was building, fixed-asset investment (FAI) grew on average 21 percent per year, while in the first half of this year, FAI's growth accelerated to 40 percent.

About 90 and 95 percent of the GDP growth this year is built on FAI, according to Wuttke.

The country's lack of consumption and sluggish demand in major export markets primarily the US are also major reasons for industrial overcapacity, pointed out the report.

"China has the lowest consumption rate of all major countries in the world," said Wuttke.

Private consumption as part of GDP in China was around 37 percent last year, while in other countries including Japan, Germany, South Korea and India, the ratio is around 55 to 57 percent of GDP, according to Wuttke.

The country's government has taken actions to curb industrial overcapacity, EUCCC believes. "We see the central government moving in fast. Many projects even under construction are stopped, and approvals have been withheld," said Wuttke.

But in light of the "low utilization rates in industries producing at overcapacity," more efforts are needed.

To efficiently tackle industrial overcapacity, EUCCC, serving as the voice of European business in China, enumerated multiple solutions, including opening up the service sector by giving more leeway to private and foreign-invested companies.

"Focusing and developing the service sector is very important," since the service sector currently only accounts for 40 percent of GDP, Wuttke said.

Household consumption will be boosted by developing the service sector "in a relatively low-energy intensive way," and uneven supply and demand relationships that lead to overcapacity in the country will be improved consequently, said the report.

Source: http://business.globaltimes.cn/industries/2009-11/488064.html