Some analysts say that the A-share market may have passed its most difficult period. Photo: AFP

David Millhouse writes for Bloomberg this week that China’s efforts to cut overcapacity have already shown positive results and have the potential to provide wide-ranging, long-term benefits:

“If implemented forcefully, it does have the potential to structurally improve the outlook for several cyclical industries, reduce pollution, and lower the risks of non-performing loans to the banking system.

Athough efforts to reduce overcapacity may bring short-term risks to the Chinese banks via higher short term nonperforming loans, the policy should structurally improve the demand-supply balance in several industries over the longer term, leading to higher utilization rates and improved profitability.”