Exploration and Analysis of Chinas Wire and Cable Industry from Large to Strong

From the beginning of 2012 to the first half of 2013, the Chinese wire and cable industry showed the characteristics of 'three slides and three increases'. Wu Shimin, Deputy Secretary General of the Wire and Cable Branch of the China Electrical Equipment Industry Association, made a profound analysis of the current development situation of Chinese wire and cable industry at the 2013 China Wire and Cable Industry Conference held recently.

He stated that currently, the output scale, sales scale, and net profit of wire and cable enterprises in China are showing a clear downward trend, with weak profitability and reduced development potential; At the same time, enterprises are experiencing an increasing trend in production costs, three expenses, and overdue accounts receivable, leading to increased financial pressure and increased risks.

In fact, with the new round of development in China's power industry, data communication industry, urban rail transit industry, aerospace industry, and shipbuilding industry, the demand for wires and cables is increasing. The report on the macro investment environment and industry development trends of the wire and cable industry from 2012 to 2016 shows that during the 12th Five Year Plan period, the acceleration of railway construction in China will bring huge demand for markets such as locomotive cables, communication and signal cables.

Moreover, in the next five years, with the implementation of projects such as the West East Power Transmission and power grid renovation, as well as the gradual promotion of urbanization construction, the capacity of China's wire and cable market will maintain a considerable growth rate of 8% to 9%.

However, the further increase in market demand has not improved the development situation of enterprises. On the contrary, due to the increasingly prominent problems of overcapacity and tight capital turnover, some small and medium-sized enterprises are facing the dilemma of production stoppage and imminent bankruptcy.

According to official data from the National Bureau of Statistics, as of April 2013, the profit margin of domestic cable production enterprises was 4.15%, and the actual profit margin of many cable enterprises has dropped as low as 3%, far below the level of around 5.54% in 2012.

Wu Shimin also agrees with this, stating that the economy of the wire and cable industry has been greatly affected. Although the overall growth trend can be maintained, the overall growth rate has narrowed, and the growth rate has begun to decline from the past double-digit level to enter (or approach) the single digit growth range.

Data shows that from January to December 2012, the industrial added value of the cable industry increased by 12.4% year-on-year. As of August 2013, the cumulative year-on-year growth of this data has declined to 9.9%. While the industrial added value of the industry continues to decline, the number, scope, and amount of loss making enterprises in the industry continue to spread and increase. As of December 2012, the number of industry loss making enterprises reached 467, and the loss area continued to expand, reaching 12%; The total loss was 2.07 billion yuan, a year-on-year decrease of 390 million yuan; As of July 2013, the number of industry loss making enterprises has further increased to 664, with a loss coverage of 16.8% and a total loss of 2.02 billion yuan.

Meanwhile, Wu Shimin also pointed out that as of July 2013, the total industry cost expenses increased by 12.1% year-on-year; Among them, operating expenses increased by 6.5%, management expenses increased by 15.6%, financial expenses increased by 3.5%, and the total of the three expenses increased by 9.9%.

In the eyes of industry experts, multiple reasons have led to the occurrence of the above situation. Firstly, the concentration of China's wire and cable industry is low, with over 95% of the enterprises in the industry being small and medium-sized enterprises. During the bidding process, they mainly focus on low price competition, with weak product quality control and continuous improvement capabilities, resulting in weak market competitiveness; Secondly, these small and medium-sized enterprises lack independent innovation capabilities, with most of them having weak technological foundations, a shortage of professional talents, and serious product homogenization; Furthermore, the unreasonable payment methods of customers, coupled with the increase in raw material prices, have greatly reduced the working capital of many enterprises, making financial management more difficult.

Faced with the already opened market demand, how to seize this rare market opportunity has become an important issue for every wire and cable enterprise. Regarding this, Wu Shimin stated that the industry should take advantage of market opportunities to truly encourage asset integration and the consolidation of excellent assets; The second is to encourage enterprises to engage in technological innovation, improve product quality, promote product technology upgrading, and improve the industrial chain; The third is to promote the use of domestic products and protect national industries.

He emphasized that overcapacity in the cable industry has been repeatedly emphasized in multiple five-year plans, and is also one of the root causes of the vicious cycle of competition within the industry. "The problem of overcapacity has become more prominent now, and some fields (such as high-voltage cables) have even been surplus for a long time. Resolving the overcapacity problem in the cable industry requires the implementation of strict industrial restriction policies, setting industry entry thresholds and dynamic adjustments for energy conservation and consumption reduction, green manufacturing, etc., forcing the elimination of outdated production capacity, and forcing enterprises with long-term inadequate product quality or quality violations to exit the market.