More than half of China’s current crop of processing factories may be set to close due to lack of profitability and badly needed productivity improvements.
That’s the view of a department of agriculture official who spoke on anonymity to share a range of opinions and departmental data showing debt and over-capacity problems in particular in the provinces of Liaoning and Shandong, the traditional heartlands of the whitefish processing sector. Some 2,000 firms in the sector are technically insolvent with only 65 percent capacity being utilised in the seafood processing space.
“Companies will have to reduce headcounts and keep only sustainable, profitable enterprises,” said the source.
This chimes with other credible surveys pointing out China’s productivity problems: Chinese productivity rates are only 30 percent those of the OECD average. China could potentially add over USD 5.6 trillion to its GDP by 2030 if it pursues improvements in productivity, according to the management consultancy McKinsey.
This would require a large scale closure of so-called zombie firms to improve the profitability of various sectors. China however has long declined to pursue this path given the mass layoffs involved, even as demographic changes is shrinking China’s workforce and pushing up wages. A clear-out of zombie firms may release some of the pressure on wages for those remaining.
