China's Supply-side Structural Reform Releases Fresh Vitality of Made in Foshan

GUANGZHOU, China, March 10, 2017 /PRNewswire/ -- Xinhua news agency published a special report about the changes in the manufacturing industry in Foshan, which showed the practice of China's Supply-side Structural Reform.

The article is as follows:

Regional GDP totaled 863 billion yuan, increasing by 8.3 percent compared to the same period last year - this is the economic development result for Foshan, Guangdong in 2016.

"The secondary industry of Foshan accounts for about 60 percent, only when the manufacturing industry is stable can the Foshan economy also be stable," said Wei Zhu, mayor of Foshan. Statistics show that the gross output value of industries above designated scale of Foshan reaches 2.13 trillion yuan in 2016, an increase of 7.7 percent. In contrast, the figure for the nation is 6 percent. What is more impressive is that the country's manufacturing investment grew by only 4.2 percent, while the growth rate of manufacturing investment of Foshan in 2016 was 22.9 percent.

Under the circumstances that national economic downward pressure is relatively high and the real economic development encounters difficulties, how can Foshan's manufacturing industry stand out? In Wei Zhu's opinion, this is due to the supply-side structural reform having achieved great success.

Reduce Costs: a Key Breakthrough Point of Supply-side Structural Reform

Architectural ceramics are a traditional industry in Foshan, the success of architectural ceramics is largely dependent on low-cost competitive strategy. The problem is that the low-cost era that this strategy relies on is disappearing.

"Traditional manufacturing like ceramics is labor-intensive and raw material-dependent. As China's labor force is reduced, the cost of labor is increasing. The country promotes saving energy and reducing emissions, adding to the cost in reducing pollution. Apart from that, the cost of raw material is increasing, so the burden for enterprises is heavier," said Chuyang Cai, President of Foshan United Ceramics Purchase Services Co., Ltd. (UCA) while pointing out the weakness of ceramic enterprises.

Based on the actual situation, after the central government clarified the concept of cutting overcapacity, de-stocking, de-leveraging, reducing corporate costs and shoring up weak spots as the breakthrough point, and promoting supply-side structural reform initiative, Foshan was a front runner by releasing the supply-side reform scheme in prefecture-level cities, and reducing cost as a key point.

"At present, the most effective way which also impressed the enterprises, is to reduce costs," Wei Zhu told the Xinhua News Agency. Foshan reduced cost of more than 28 billion yuan for enterprises last year, which equivalent to one-sixth of total fiscal revenue of the city.

Although the gift from the government is big, the reductions of institutional transaction costs and tax costs are still limited, and it is impossible to expect this yearly. Therefore, enterprises shall take the initiative, strengthen internally, increase revenue and reduce expenditure. The establishment of UCA is a bold exploration of Foshan's ceramics industry.

"With 'industry + Internet + financial capital' at the core, UCA conducts processing, optimization and matching of information, thereby reducing intermediate links," Chuyang Cai added, after the buyer's order is collected by the platform, the platform will negotiate a purchase price lower than the market price with suppliers based on large quantities of procurement. Estimated by UCA, ceramic buyers can reduce procurement costs of at least by 15 percent with the purchase approach.

Respect Enterprise's Principle Position: the Practice of Supply-side Structural Reform in Foshan

What role should the Chinese government and enterprises play in the process of supply-side structural reform? Foshan provides insight.

"Supply-side is the enterprise-side, we always believe that enterprise is the principle part of supply-side structural reform," stressed Wei Zhu, the private economy is the mainstay of Foshan, therefore, the government shall not interfere with enterprises but respect them and let the market play a decisive role in the allocation of resources, as well as correct the allocation distortion of elements which result from excessive reliance on administrative resources, thus reducing government intervention to the market, where enterprises can truly become the principal part of the market.

Foshan's private capital has formed a keen market sense and rapid response capacity. For example, once the market demand declines, companies will reduce production and excess capacity will not happen. While facing fierce market competition, enterprises will take the initiative to carry out industrial upgrading in accordance with market demand and cover the development shortages to improve the competitiveness of their products.

"Of course, this does not mean that the role of the government is important. On the contrary, the role of government shall be better played during the supply-side structural reform, such as the reduction of institutional costs. More importantly, the government shall formulate effective policy and incubate a good market environment," he added.

Deepen Reform and Polish the Made in Foshan brand

"After one year of reform, Foshan profoundly realized that the supply-side structural reform is a key measure to adapt to and lead the new normal of economic development, to promote the transformation of economic development and strategic adjustment of economic structure," Wei Zhu commented.

From the practice of Foshan, Wei Zhu believes that "cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak spots are the priority tasks currently, but they are not all of the supply-side structural reform." Wei Zhu added, the fundamental purpose of the reform is to improve the supply quality.

Qian He, president of Guangdong Jinyitao Ceramics Co., Ltd., told reporters that products of his company are popular in the market as a result of more emphasis on brand, design, and innovation. As early as two years ago, there were Italian factories providing original equipment manufacturing for Jinyitao.

2017 is the year in deepening China's supply-side structural reform, Foshan will continue to explore reform measures suited to local conditions. Wei Zhu said after three years of efforts, Foshan will achieve the development mode transformed from scale speed growth to quality and efficient growth, and achieve development elements transformed from traditional elements oriented to innovation, as well as the value chain of industrial division transformed from low-end to high-end, thereby building a supply system with abundant levels, high quality, efficient, outstanding characteristics and strong competitiveness. The reputation of Made in Foshan will be further enhanced and a higher level of new supply and demand balance will be achieved.

For more information contact:

Wu Yanting
+86-188-0201-1000
[email protected]or [email protected]

SOURCE Xinhua News Agency Information Center Guangdong Branch