Idle equipments threaten Chinese economy

Idle equipments threaten Chinese economy
Matt Pottinger

APRIL 30: In a startling admission of waste and ineptitude by state planners, a Chinese newspaper said on Sunday more than half a trillion yuan ($60 billion) in equipment was sitting idle at government-owned enterprises.

The value of the cobwebbed equipment was equal to 6 per cent of China's gross domestic product.

The huge waste indicates the difficult task leaders face in restructuring the economy and making efficient use of capital. Officials have called the idle assets "a serious concern" and are scrambling to find remedies, from Internet auctions to tax reform, the China Daily Business Weekly said.

In Shanghai alone, a key commercial hub, idle equipment was valued at 20 billion yuan, the newspaper said.

The problem underlines a yawning disconnect between the quantity of raw capital Beijing is pouring into its economy and the quality of investments.

The pile-up of redundant equipment, purchased by poorly trained state managers accustomed to an open spigot of subsidies and loans, also demonstrates China's desperate need to expand the private sector to make efficient use of capital.

While mergers and bankruptcies of state-owned enterprises (SOEs) were partly to blame for the surfeit of equipment, bad judgement by managers was also a root cause, the China Daily quoted a China Association of Equipment Management official as saying.

"Existing enterprises' blind imports and the duplicate construction of state-owned projects are major factors contributing to the equipment problem," the newspaper quoted association vice-president Zheng Qingsu as saying.

"Finding a way to use idle equipment is crucial to improving the country's SOE reform," he said.

He said the vast majority of the equipment could be re-used, particularly advanced machinery imported in the 1990s.

The government has been pouring money into technical upgrades as part of a huge state spending spree intended to spur economic growth, and much of that money has been borrowed from the banks. Ultimately, it is Chinese bank savers who pay for the waste.

Much of the idle equipment is state-of-the-art, imported from the United States and Europe -- a fact underlining how the woes of loss-making enterprises is not caused by lack of capital or technology, but by decisions driven by bureaucratic fiat instead of the free market.

Attempts to put the equipment in the hands of companies that need it have so far achieved only modest success, Zheng said.

Since 1991, the government has hosted an annual Idle Equipment Fair, but transactions last year amounted to only three billion yuan, the newspaper said.

Managers at state enterprises have also been loathe to sell equipment, however useless, for fear it will drain the value of assets on their balance sheets.

Also blocking the way is a 17 per cent tax on such transactions -- a "wet blanket" on efforts to remedy the situation, Zheng said.

Zheng said his association was advocating a reduction of those taxes, and has set up an Internet site to make it easier for companies to buy or lease idle goods.

"Both domestic and foreign enterprises are welcomed to participate in the online transactions," Zheng said.