Poor prospects seen inhibiting change

Chinese businessmen voiced their concerns about corporate growth prospects at a forum in Beijing yesterday, and said that the time is not ripe for industrial transition.

Enterprises should change their business models only when profit margins are healthy and the macroeconomic environment is conducive, but the current conditions do not support such a move, Cao Dewang, chairman of Fujian-based Fuyao Glass Industry Group, the world's second largest automotive glass supplier, told the forum on economic growth and entrepreneurship organized by US auditing firm Ernst & Young.

"Labor costs, land costs and financing costs have all had a negative impact. My company's labor costs this year have risen by 25 percent from last year," said Cao. "Fuyao Glass does not need a transition now."

The central government has called for an economic transition to upgrade the country's industrial value-chain and to rely more on domestic consumption for growth. But the current conditions are proving obstructive.

Because of shrinking demand in both overseas and domestic markets, the risk of deflation in the second half of the year in China has increased, financial news website caijing.com.cn reported yesterday, citing Chen Dongqi, vice president of the Academy of Macroeconomic Research under the National Development and Reform Commission.

Chen said that if the GDP growth rate in the second quarter of the year falls below 7.5 percent, then the government would significantly change its policy stance.

"Monetary easing would not be enough - fiscal stimulus and infrastructure spending are necessary to achieve the 7.5 percent growth target for the year. Policymakers also need to order banks to lend more. Such measures need to be introduced by July to turn the economy around in time," Dariusz Kowalczyk, senior economist at Crédit Agricole CIB, said yesterday.

"If we do not see (these measures) by then, we will cut growth forecasts, and China would likely fail to achieve its targets," Kowalczyk noted.

Cao said that the worst is yet to come, and to overcome the current difficulties, he urged entrepreneurs to "tighten belts." Industrial restructuring is out of the question for now, and "the government should not intervene in corporate transitions," he said.

"Companies usually have long-term plans... and a transition can take 10 years to accomplish. What the government can do is to ensure a stable business environment," Luo Lin, chairman of Hong Kong-listed Anton Oilfield Services (Group), said at the forum.

Chinese companies are now fully integrated into the capital market, from which they have raised hundreds of billions of yuan.

"They are very big but not so strong yet, and a mistake (in transition) could hurt the economy," said Joe Tsang, a partner at Ernst & Young.