WEALTH

MICRO
INSIGHTS
• It takes 91 days for Chinese firms to collect cash for sales – far more than the world average
• Up to 7,000 Chinese companies are predicted to fail from 2015 to the end of 2016
• Overcapacity results from the stimulus package introduced following the 2009 financial crisis
• Structural reform is moving the nation away from low-cost manufacturing
• Ambitious “One Belt, One Road” could see China become an engine of growth once again
The Chinese government has set about a structural
reform in industries so that the nation can move away
from low-cost manufacturing to an economy shaped by
services. As a result, the state’s strategic focus is no
longer on sectors which were subsidized in the past –
and the government no longer fears letting them go bust.
Speaking in March 2015, Premier Li Keqiang said
vested interests would be upset. “This is taking a knife to
one’s own flesh ... However painful it may be, we are
determined to keep going until our job is done.”
THE KNOCK-ON EFFECT
The DSO indicates companies are hurting. Many find themselves
stranded in an environment for which they are not equipped. High levels
of debt and the now relatively high wages in China mean that many are
no longer competitive without state subsidies, so they are now passing
on payment pressures to their own vast web of suppliers.
As the web of suppliers is complex, insolvencies in China risk
taking down entire supply chains, and the knock-on effect threatens
manufacturers in trade-sensitive “old dragon countries” like Hong Kong,
» THIS IS TAKING A
KNIFE TO ONE’S OWN
FLESH ... HOWEVER
PAINFUL IT MAY BE, WE
ARE DETERMINED TO
KEEP GOING UNTIL OUR
JOB IS DONE «
PREMIER LI KEQIANG
Singapore, South Korea and
Taiwan. Service companies
are already feeling the impact,
while disruption is also being
felt by suppliers of raw materials
in Malaysia, Latin America, the
Middle East, and Africa.
While structural reform
will reboot the Chinese economy
and help the country move up
the value creation chain, the red light of
DSO will not stop flickering until this
rebalancing is achieved. The ambitious “One
Belt, One Road” program, which foresees a
21st-century land and maritime Silk Road,
and other trade partnerships, such as the
ASEAN economic community – should they
come to fruition – could be the vehicles that
see China once again become an engine of
growth for the world.
48 • Allianz