China will need to cut 3.5 million jobs across six core industries as tonic for excess capacity, says UBS
A 10 per cent capacity reduction is needed in six main industries, according to new research
China’s excess capacity problem is daunting by any yardstick.
The nation’s ability to produce manufactured goods outstrips not only the demands of the mainland economy, but that of the entire global economy, as indicated by deflation in factory gate prices, according to economists.
Factories and other major industrial plants are running well below capacity, highlighting the lacklustre demand.
According to UBS, the steel sector is running at 67 per cent of capacity, while coal is at 65.8 per cent. Further declines in utilisation can be expected as the economy cools further.
New research by UBS indicates that a 10 per cent capacity reduction will be needed across six core industries to help bring supply and demand into closer alignment. These excess capacity sectors include coal, steel, cement, flat glass, aluminium smelting and ship building. The cuts will trim 3.5 million jobs, according to UBS Economist Tao Wang.
“Two million direct jobs are expected to be cut in the excess capacity six sectors,” Wang said. “In addition, another 1.5 million workers may lose their jobs in other related sectors.”
