Recently, Shandong, China's tire- producing province, reported that a number of tire companies had broken the capital chain and the boss was running.
Since 2015, news of the bankruptcy of domestic tire companies has occurred one after another, and the nervous nerves of Chinese tire users have been repeatedly stimulated. How to survive and not be eliminated has become a problem that Chinese tire manufacturers now have to seriously consider.
China's tire operating rate comparison chart
According to a recent survey, 65% of respondents believe that a large number of tire companies will be eliminated in 2016.
In the new year, what kind of living environment is China's tire industry in the end?
A recent report issued by the Central Bank pointed out that in 2016, the downward pressure and risks faced by the Chinese economy will come mainly from three aspects: overcapacity in manufacturing, bank loan cautiousness and international financial risk.
It has been observed that the Chinese tire industry also faces these three problems.
Structural excess production capacity tire investment slowdown
The Central Bank believes that at present, the profit growth rate of Chinese manufacturing companies is still sluggish, and the overcapacity is still not significantly relieved. In the first half of 2016, the growth of investment in manufacturing may continue to slow.
Data show that from January to October 2015, China's tire output value fell by 13.26% year-on-year, sales revenue dropped by 14.06% year-on-year, and profit dropped by 35.44% year-on-year.
Shi Yifeng, secretary general of the tire division of the China Rubber Industry Association, said that in addition to the decline in profitability, the issue of structural overcapacity in China's tire products is very prominent.
It is reported that in recent years, many domestic new tire projects are not high grade, mainly producing low value-added products, which basically belong to repetitive construction.
"These companies that are swarming and lacking in development awareness, relying on price competition to compete, and earning no money on their own, have disrupted the market order," said a well-known tire company.
In 2015, due to the deteriorating market conditions, the growth rate of investment in the tire industry showed a steep decline, and some projects were forced to be stranded. According to statistics of the China Rubber Association, in the first half of the year alone, the tire projects of nine companies were stopped.
Bank Loans Cautious Capital Chain Tightening
The central bank believes that the second largest pressure on the Chinese economy is that corporate non-performing loan ratios are in an upward cycle, and bank loans are more cautious.
The media learned that for companies, financial pressure is the most deadly pressure, especially for tire manufacturing companies.
It is reported that tire manufacturing is a capital-intensive industry, and an up-scale tire project will inevitably require several hundred million yuan and even billions of dollars in funds. Without the support of the banks, it is almost impossible to achieve rapid development by relying solely on the turnover of the company itself.
In 2015, the industry situation was not good, and the profitability of domestic tire companies generally declined. Take several listed tire companies as an example, Guizhou Tire, Shuangqin shares and many other companies have suffered huge losses.
According to the above-mentioned tire business person, “In this case, anyone who can make money will be able to live. Otherwise, even larger companies may go bankrupt due to capital chain breaks.â€
The media found that among the several tire companies that had recently closed down, the "last straw" that overwhelmed the company was the breakage of the capital chain. A person familiar with the matter disclosed that many companies in the tire industry have loaned loans to banks through mutual guarantees. Therefore, it is fatal for the banks to tighten their monetary ties against tire companies.
2016 is a sensitive year. Some tire companies face the problem of capital chain, which may cause series of chain reactions.
Uncertain demand or impact of financial risks
The central bank believes that in 2016, the uncertainty in the financial sector at home and abroad will be greater; the Fed’s rate hike may lead to a new round of international financial market volatility; and the financial risks in some domestic areas cannot be ignored.
China's tire industry is an export-oriented industry, and nearly half of tire products need to rely on foreign markets to digest. Therefore, the international market will have an impact on Chinese tires, especially financial factors.
It is understood that as a result of trade barriers such as “double reverseâ€, Chinese companies’ tire export business in 2015 has been hit hard.
According to the data, China’s tire export volume decreased by 6.6% year-on-year and export value decreased by 15.1% year-on-year.
At the beginning of the new year, the United States launched a “double reverse†investigation on Chinese passenger car tires, which made the tire exports even worse.
“If the international financial market in 2016 is subject to severe fluctuations that affect the real economy, the market demand for Chinese tires may be greatly affected,†analysts inside the industry said.
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