Can China’s Heavy Industrial Companies Survive As The Country Shifts To A Consumer-Led Economy?

The period of high economic growth in China seems to be waning after having come a long way.

In the past three decades, China has moved more people out of poverty than the population of the United States. Today, China stands as the second largest economy in the world by gross domestic product (GDP), surpassing Japan in 2010.

Gross Domestic Product


But in recent years, GDP growth in China has been declining. Some think that China has already utilized most of the potential of its export-led economy and would need to transform its economy into a consumer-led one like many of the developed nations.

GDP Growth Rate


The question now is, if China is successful in the transformation, what does it mean for many of its export-led businesses, especially those in the heavy industrial sector?

There have already been multiple reports of large manufacturing towns being uprooted due to the closure of major factories. Industries dealing with commodities, like steel manufacturing, have been hit particularly hard.

Will the pain spread to the downstream portion of the steel industry, such as shipbuilding? Will shipbuilders such as Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) and Cosco Corporation (Singapore) Limited (SGX: F83) become obsolete in China?

The thought of billion-dollar corporations becoming obsolete seems ridiculous. But, the threat is real. Think of the decline of huge companies like Eastman Kodek, Nokia, and Sharp Corporation – all three failed to transform themselves when their industries were evolving.

For the shipbuilding industry in China, what we will most likely see, in my opinion, will be consolidation.

Smaller and less efficient manufacturers would find it more and more difficult to operate in the competitive environment. Ultimately, there might only be a couple of large shipbuilding corporations left in China with the smaller ones either going bust or absorbed by their larger peers.

Foolish Summary

It is still too early to know who will be the winners and losers in the transformation of China towards a consumer-led economy. But, one thing for sure is that if a company refuses to change with the times, then time will catch up with it eventually.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.