The global financial tsunami in 2008 has caused the most severe recession since the Great Depression in the 1930s, driving the global economy to collapse, especially in developed countries. The economic growth in developing countries such as China was also impacted by the financial crisis. According to the China Review News, it had a significant negative impact on its manufacturing industry and traditional industrial sectors, including cement, iron and steel industries as well as energy industry.
According to the Producer Price Index (PPI) in China, the price of products has been declining for the past two and a half years. The Chief Economist of the Bank of China International, Mr. Cao Yuanzheng, commented that if the negative PPI continues in the long run, it is a signal of excess supply. If the PPI of heavy industries keeps declining, it would create a vicious circle, which in turn will cause negative impacts on China’s economic growth.
The excess supply issue can also happen in developed countries such as the United States and Japan. Take the United States as an example, the Congress of the United States passed the Foreign Assistance Act in 1961 after the WWII to offer financial assistance to West European countries. The outcome was a win-win situation. This act helped the economic recovery of Western Europe and enhanced the integration of the European continent. For the U.S., this new law solved the problem of excess supply through export, boosting a 25% increment in the country’s gross national product (GNP) and contributing to its long-term economic development.
There are always two sides of a coin. The global financial tsunami and the local excess supply problem may be a good business opportunity. In fact, China’s excess supply issue in certain industries might not necessarily turn into a serious issue because it can be solved in a number of ways.
Export. Take the phosphate fertilizer industry as an example, China produces approximately 1,386 tones of phosphate fertilizer every year, which has far exceeded its domestic demand. Meanwhile, Vietnam, which exports its paddy rice, has a high demand on phosphate fertilizer. Therefore, there is actually a potential collaboration opportunity between these two countries.
Developing business in emerging markets. For example, there is a great demand in the low-cost automobile in developing countries like Africa. Thus, the automobile industry in China, which is known for its low price, has an edge over many developed countries to gain a great market share in Africa. Such an advantage can be more fully utilized by establishment business offices in emerging markets.
For alternative energy industries, the problem of excess supply can be resolved by adopting new technology from the developed countries and restrucuturing the company’s organization and management, which can help to upgrade its own profile.
As what has been suggested during the Third Plenary Session of 18th CPC Central Committee, a better cooperation of the “Go Out Policy” and the “Come In policy” can bring greater opportunities to enterprises.
