The recent Third Plenum of the Communist Party of China has outlined the strategy and road-map for comprehensive and deepening reforms to meet pressing challenges. One such challenge is to resolve China’s industrial over-capacity and successfully implement the“go-out”strategy for Chinese enterprises. The answer is to combine the two elements to create a new thrust in the metamorphosis of China’s economic development.

The direct cause of the industrial over-capacity is that China’s economy is undergoing fundamental readjustments versus the global economy. With ensuing knock-on effects of the global financial and economic crises manifesting in the economic stagnation of advanced nations coupled with slow-down in China’s domestic demand，China’s industrial over-capacity accumulated over the past several decades has been brought into sharp relief.

This phase of over-capacity will be long and painful to overcome. Many factors are at work such as peaking of demand for traditional heavy industrial goods，decreasing returns for industrial and infrastructural investments，deficiency in industrial policies and vicious regional competitions.

China’s over-capacity is mainly demonstrated in traditional manufacturing sector that is both energy-intensive and highly polluting. Take 2012 for example，China’s production-to-capacity ratios in iron-and-steel，cement，aluminum，flat-pane glass and ship-building are respectively 72%，73.7%，71.9%，73.1% and 75%. This has resulted in steep profit-slide，accumulation of debt and near bankruptcy for many companies. If left unchecked，it could lead to piling-up of bad loans for banks，deteriorating eco-system and total bankruptcy of whole sectors of industries that in turn will impact the transformation of economic growth models and improvement of people’s livelihood and even destabilize the society as a whole.

The Chinese government，guided by the principle laid out at the Third plenum，has put forward guidelines for its resolution. The most important is to turn the challenge into opportunity by“moving out”this over-capacity on the basis of China’s developmental strategy，her foreign policy and“go-out”plan for enterprises. In so doing China will contribute to greater global trade and investment so as to share her developmental dividends with other developing nations for common prosperity.

To make it a success，China needs to take a coordinated，innovative and cooperative approach to produce synergy of common interests for the countries concerned. The following are some suggestions for this endeavor.

1.China’s neighborhood. According to a China Financial Corporation report，the next few years will witness booming infrastructure construction in South-East Asia with Indonesia，Thailand and others having publicized their mid-to-long-term plans. The total investment is projected at 1.5 trillion US$ between 2011 and 2020. Chinese companies enjoy advantages in high-speed railway，highway，ports construction and energy production. Moreover China attaches importance to its economic connectivity with ASEAN and has promised policy and financial support to Chinese companies. It will benefit both ASEAN and China if this strategy is successfully implemented. In short term benefits will be derived from infrastructure construction. Median term benefits will accrue from expanded opportunities of trade. Long term dividends will be reaped from greater economic growth based on sound infrastructure in ASEAN countries.

2.Iron and steel. The imbalance in global capacity distribution exists in juxtaposition with huge market potentials in South-East Asia，Central Asia and Africa. Chinese companies must seize the opportunities opened by the declared policy of China to build“new silk road on the sea”and“economic belt of the silk road”by joining the China-Africa Cooperation Initiative and Upgrading China-ASEAN FTA with the provision of assistance，setting up joint ventures，processing and distribution zones. Iron and steel is indispensible in infrastructure building.

3.Chemical industry with phosphate fertilizer for instance. One country’s over-capacity can be another’s necessity based on different natural endowments and levels of economic development. In 2009，China produced 13.86m tons of phosphate fertilizer. That may be too much for domestic consumption. Meanwhile Vietnam and the Philippines are insufficient in their supply of phosphate. No one will miss the whole picture where China and its neighbors are mutually complimentary in the supply and demand of phosphate fertilizer. The over-capacity can be absorbed at one stroke that benefits all.

4.Ship-building. The current global demand is 800m tonnages while China has 1.2b production capacity. No doubt there is some over-capacity.“Post-‘12th-Five-Year-Plan’ Three-year Action Plan for Ship-building Industry”says that China supports qualified companies for overseas merge and acquisitions. It shows the way out for Chinese ship-builders to engage in overseas M&A，joint venture and direct purchase so as to become giant companies that span both up-stream and down-stream in ship-building.

5.African Continent. It is the most promising continent for world economic growth in the 21st century. Many African countries scored economic growth around 5% in the last 5 years and this trend is expected to continue. Such stellar performance has attracted the global attention and investments. Large chunks of African population have emerged as middle-income consumption groups. China，in addition to her advantage in infrastructure construction，is strong in producing consumer goods such as electronics，textiles and others. Her position is reinforced by the government’s offer of financial support provided in China-Africa Cooperation Fund as well as her long years of friendly relations with Africa. It is also notable that Africa has been improving its policy and legal environment over the years.

6.Finally the measures by China’s financial sector to smooth the orderly transfer of over-capacity overseas. The China Bank Supervisory Commission has issued directives for Chinese banks to assist in addressing over-capacity by following measure：expand green credit，support efficient expansion of demand，support“go-out”strategy，support overseas M&A，implement differentiated supervisory policy etc. In concrete terms banks are asked to give out-going companies domestic insurance and overseas credit，more credit both in RMB and foreign exchanges，trade finance and international insurance as appropriate，thus also facilitating export of Chinese equipments，products and services together with Chinese standards.

Now is the time for Chinese enterprises both state-owned and private to act without delay. It is highly desirable for them to closely study the investment environment abroad and favorable domestic policies so that the right plans can be made to fit themselves. It is also conceivable to join hands in“going out”for better results. A better“win-win”future awaits us！