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People's Daily Online>>China Business

China's real economy face six major problems

By Dong Wei (China Youth Daily)

08:28, March 14, 2012

Edited and translated by People's Daily Online

"Wuhan Iron and Steel Company veers off business focus to pig farming because it is more profitable than steel production. It shows that China's real economy is facing serious internal problems, in addition to external problems such as sluggish demand and snobbish banking practices," said Li Xiaolin, a member of the Chinese People's Political Consultative Conference (CPPCC) and also a member of the Central Committee of the China Democratic National Construction Association (CDNCA).

The CPPCC recently adopted a proposal for economic reforms from the CDNCA, Chinese Peasants' and Workers' Democratic Party, and All-China Federation of Industry and Commerce, as the first policy document for discussion at its annual session this year.

The three political groups believe that China's real economy is facing six major problems:

First, small and medium-sized enterprises (SMEs) in the real economy are under heavy pressure of razor-thin profits and soaring production costs caused by multiple factors. Second, excessive state monopolies have stifled access to capital for private enterprises, and seriously limited the growth of SMEs in the real economy. In such a context, a large amount of private capital has turned into hot money. Third, SMEs in the real economy are receiving much fewer orders and facing a serious overcapacity problem due to sluggish market demand caused by the global financial crisis. Fourth, private SMEs in downstream industries are facing serious problems such as financing difficulties and labor shortages, forming a sharp contrast to those in upstream industries. Fifth, investment in the virtual economy can bring much higher returns at a faster pace than investment in the real economy, so capital naturally flows to the virtual economy. Sixth, business innovations require heavy investment and carry high risks. Due to insufficient resources and limited capability, SMEs are having problems conducting innovations and transformation.

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