China Watch Blog has learnt that China needs to lay a solid foundation for its “real” economy, including manufacturing and services, which has shown signs of hollowing out based on proposals the China Federation of Industry and Commerce submitted to the upcoming National Committee of the Chinese People’s Political Consultative Conference.
According to Zhuang Congsheng, vice-president of the federation quoted in a China Daily report, the risks that China currently faces might evolve into a situation similar to the eurozone debt crisis if the tangible economy failed to be bolstered by efficient measures.
In recent years, a huge amount of capital has gone into intangible areas, such as real estate, as many enterprises closed their core businesses or merely kept them as a financing platform.
It has become a common view among Chinese business people that real business is now seen as inferior to financing, real estate and marketing, and that must be changed, Zhuang said.
However, unless the huge profits made by speculation in the real estate and financial markets are reduced, it will be difficult to draw capital back to real business, he said.
The average profit of real business was between 5 to 8 percent in 2011, with some enterprises registering profit of less than 1 percent, while the average profit of commercial banks hit about 22 percent over the year, according to the federation.
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