Liu Zhiqin, a senior fellow at the Chongyang Institute for Financial Studies of Renmin University of China, was interviewed by CCTV on the falling of industrial profit growth on Oct.27.
As for the falling of industrial profit growth to 7.7%, Liu said that the figure is out of the expectation, but does not mean more troubles. There are more difficulties and problems in this sector, because in the past the labor costs and the raw material costs increased especially the petrol oil. International market has been changing a lot. That affected the profit of the Chinese companies. Secondly most of the companies have the problems for the restructure. The restructure costs a lot of money. All these reforms take profits from the companies. So it is normal that the profit growth slow down compared with before. Liu said that at the moment the real trouble is the international market, because we have to meet stronger protectionism.
For the overcapacity, Liu said that more moderate policies could be worked out to implement on that. Overcapacity is one of the causes to lower down the profit, because overcapacity means oversupply, which make the profit lower. Actually at the moment something is different in China, because the market price for the steel and coal a little bit increased in the past three month. That is why some areas and some provinces are still making many productions to meet the demands of the market. The competition among the supplies made the profit lower. So more moderate policy could be issued sooner or later to push for reform of the companies.
Liu said he is optimistic for the steel section. Because the market demand is still existing, and will increase in the next three month or six month. The real estate is still very booming, and has a positive future. On the other side, one belt one road project is really increasing now. It needs a lot of supply of steel this year. So we are sure the market is positive.