What are the main risks faced by Chinese enterprises? Some think that the risks are human resource, property, production, supply and marketing. For Anbound's Chief Researcher Chan Kung, the aforementioned are indeed risks faced by enterprises who have just started its operation. If the enterprise is on track, it is necessary to focus on the environmental issues and see what changes have been made to the corporate environment. This is related to how far the enterprise can go and whether it is stable. If environmental changes are not given due attention, an enterprise might face harsh difficulties even if the it has spent a lot of effort to get on track.
Chan Kung believes that the real risk faced by Chinese enterprises is overproduction. The overproduction mentioned here is a kind of relative overproduction. If the production of capital driven by enterprises exceeds the demand, overproduction occurs. The large excess capacity in China during the recent years is in fact a proof of said overproduction. There are historical reasons for how China reached its present environment of overproduction. China has long participated in globalization with cheap manufacturing costs. In the past, it has played the role of "world factory" for a long period of time, mainly to produce cheap goods for the world. Structural adjustments now show that China's huge production capacity has encountered excess in both the global and domestic markets.
The situation of the development of the world market is also roughly the same. Globalization has made the world the "flat", something that the globalists admire. Multinational companies are able to deploy production around the world in accordance with principles of efficiency, which makes the global manufacturing capacity and trade volume increase greatly. However, with the further and in-depth development of globalization, there are too many countries and regions with the same production capacity, yet capital still continues to be invested. This has caused global overproduction problems, and this important change is summed up by Anbound as going "from the seller's world to the buyer's world". One of the rules of the buyer's world is that because of the existence of over-production, the buyers of the world market are relatively tough and occupy a favorable position for competition. On the contrary, sellers need to beg buyers in order to get a share of the buyer's market. As Anbound's research team has repeatedly stressed, overproduction and the transformation of the buyer's and seller's market positions are one of the important reasons for the U.S.-China trade war.
Realizing the seriousness of the problem of overproduction is not only important for enterprises, but also for national and local economic policies. From our observations, the Chinese policy department does not seem to recognize the problem of overproduction and its seriousness. During our researches and surveys conducted countrywide in China, we found out that many are asking if it is feasible to establish industrial parks in certain places, or if it is possible to build major production bases in other areas. This is in fact the concern of classic economics, and economists everywhere are talking about production-related issues. The issue is also about improving efficiency in order to produce more, as well as to undertake industrial transfer and external migration, and also to strengthen production capacity. As for consumption and market space issues, they are in a secondary position. All these are taking place as if the current world is still in the era of shortage. Many people also do not agree with China's transition to a consumer society. We believe that it would be rather dangerous to focus on production and ignore consumption and the market.
Chan Kung further pointed out that whenever a country accumulates debt and stock, it indicates that the country is facing a transformation. If one ignores this and continues to promote and expand the production, it would not be a wise idea. Looking at China now, some counties and cities are engaging in the construction of industrial parks. Many local governments have also issued a large number of indicators that each industry park has to achieve certain output value. If this is done in by everyone, it would push China's overproduction to extremities. There will not be many industries, and the products produced will face difficulty in finding the market for consumption. Obviously, this is not sustainable and the risk is too great.
It is necessary for countries and businesses to avoid the risk of overproduction. For entrepreneurs, they need to adjust their strategy and prevent making too much investment in the production to avoid this risk. To put it bluntly, they need to do more things to expand the market and consumption, and engage less in production. Nowadays, one has higher chances of making a fortune by expanding the market and promoting consumption. In fact, companies like Alibaba and JD that are now cash-rich are doing exactly this. Expanding production at this stage only wastes resources and increases debt.
Final analysis conclusion:
The world, including China is facing the problem of overproduction. The world has changed from a seller's world to a buyer's world. The market space and the consumer market are more competitive than production capacity. For countries and enterprises, they need to adjust their strategies and engage more in market expansion and consumption in order to adapt to changes in the current situation and avoid the risk of overproduction.
