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| Overcapacity Leads to Declining Profits, Economist Warns |
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The chief economist of China's National Bureau of Statistics has predicted Chinese enterprises would say goodbye to the fat profits era as the economy is hit by overcapacities in some industries. Yao Jingyuan, the economist, also played down worries among some other economists that declining industrial profits might signal the start of economic cooling. The market economy itself means an equal distribution of profits. When supplies climb and surpass demand, prices will fall and result in a reduction in the enterprises' profits, he said, quoted by Wednesday's Information Daily News. "This is a logical evolution," he said. Yao said the latest round of economic overheating in China has brought about overcapacities in a number of industries, which is the main reason for the declining profitability of Chinese enterprises. He urged enterprise managers to treat the issue of falling profits calmly. "Chinese businesses will enter an era of normal profit after 2005 when large numbers of enterprises will no longer enjoy high profits," he said. "In a normal economic environment, businesses should make money by improving management, instead of pursuing fat profits." Yao said the government is facing a dilemma: on one hand the government should rein in the investment scale to avoid new overcapacities; on the other, it should spur consumption so as to reduce the impact of investment growth slowdown on the economy. (Xinhua News Agency January 11, 2006) |
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