(The following was released by the rating agency)
Link to Fitch Ratings' Report: Scenario: China Rebalanced;
What a Rebalanced China Would Mean for Corporates
SINGAPORE/HONG KONG/LONDON, January 23 (Fitch) As China
transitions from an investment-led to a sustainable consumer-led
economy, new industries will expand in size to meet empowered
consumers' requirements, Fitch Ratings says in its new "China
Rebalanced" scenario report today. Existing industries will also
need to move up the value-added and innovation chain in order to
ensure sustainable growth into the future.
Fitch believes that if improved welfare state apparatus is
in place in a rebalanced China, which reduces consumers' needs
to save, new service-orientated industries will expand rapidly.
These include travel, leisure and foodstuff companies,
healthcare (products, hospitals and services) and particularly
elderly care, given projected demographic changes.
Other industries have various challenges. China's domestic
technology sector would migrate from its low-cost assembling
role, and seek to move up the value-added innovation curve as
its workforce became more expensive and China's empowered
consumers increase their domestic spending power. In turn, if
successful, these sizeable Chinese technology groups could then
pose serious threats to Japanese and potentially Korean
technology groups, just as Korean entities are currently
challenging Japan's position.
However, Fitch questions if a lack of institutional reform
in the guise of intellectual property rights protection, rule of
law and enforcement would hinder Chinese companies' (including
those in the tech industry) movement up the innovation curve.
Similarly, domestic participants in the steel and chemical
industries would also need to move up the value-added chain. The
Chinese steel industry's product palette and overcapacity are
largely driven by the existing investment-led economic model,
with profitability a secondary consideration. Therefore, the
challenges to move up the value chain are greater. However the
chemicals sector illustrates an industrial sector where this
process is already progressing.
China has moved off the bottom of the value chain in
chemicals, transitioning away from commodity to specialty
chemicals. Domestic joint ventures which have embraced overseas
technology have established themselves at the better end of the
domestic cost curve for chemicals, but China has a disadvantage
in having coal plant crackers (rather than cheaper gas).
For a detailed discussion on commodities, autos, housing and
the energy and utility industries, see Fitch's report "China
Rebalanced: What a Rebalanced China would mean for Corporates,"
available at www.fitchratings.com.