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Firms may need asset finance to free funds
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CHINA’S manufacturing industry may need to turn to asset finance to free 1.37 trillion euros (US$1.88 trillion) of “locked liquidity” in the next five years, according to a new report by Siemens.
The companies need to unlock the capital tied up in the purchase of equipment to maximize available working capital as outright purchase of equipment and machinery makes little economic sense when they depreciate, according to the white paper released yesterday by the financial services unit of the German industrial conglomerate.
“For manufacturing companies, it makes little sense to commit capital to depreciating assets,” the report said, adding that more small and medium-sized companies are turning to asset finance to free up locked liquidity.
Globally, locked liquidity levels could represent around 0.75 percent of manufacturing turnover on average.
As global net profit margins in manufacturing are around 10 percent to 11 percent, the 0.75 percent of turnover represents about 7 percent of profits, according to the report which is based on a survey of the industrial sector in 10 countries, including the United States and Russia.
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