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Technology/Machinery

Outlook bleak for companies in China

Hopes were pinned on China’s 20th Party Congress but nation faces a situation likened to “choosing between plague and cholera”.

10th November 2022

Innovation in Textiles
 |  China

Clothing/​Footwear

Strict zero Covid-19 policies in China continue to significantly hamper business for local machinery manufacturers, including many leaders in textiles and nonwovens equipment, according to the latest  survey carried out by Germany’s VDMA of 850 of its member companies.

A quarter of the companies surveyed expect business to actually worsen over the next six months, with 23% rating the current business situation as good, 54% as satisfactory, and 23% as poor.

“The balance of positive to negative assessments is zero and thus only one percentage point higher than in Spring,” explains Claudia Barkowsky, chief representative of the VDMA in China. “Business momentum has not improved since the Spring, which was mainly marked by the long lockdown in Shanghai and severe restrictions in other regions of the country.

“Travel remains difficult to impossible, numerous trade fairs have been cancelled or postponed in the second half of the year and curfews continue to be imposed. The frustration is high.”

“No one here expects Covid-19 measures to be eased soon – infection numbers are rising, winter is coming and not much has happened with regards to vaccinations. Hopes were pinned on the 20th Party Congress, which is over, and there are no signs that the situation is improving. The bottleneck remains Covid-19 – strict measures with a negative impact on the economy versus opening up with the risk of uncontrolled infection. It would be like choosing between plague and cholera.”

Capacities

A similar picture can be seen in capacity utilisation – it has improved only slightly compared to the previous survey and remains well below previous levels. Currently, 29% of the companies are reporting capacity utilisation below the long-term average. In Spring this was 37% and 22% reported above-normal utilisation. The balance of positive to negative ratings is therefore currently –7.

Some 70% of the companies face factors that hinder their business operations in China. Although the number of companies affected has fallen by 17% since Spring, it remains high.

The ongoing Covid-19 measures severely restrict both international travel and domestic mobility and are a challenge for every second company (54%). In addition, shortages of materials and raw materials are a particular problem, with 29% of respondents citing difficulties. Restrictions due to local content requirements, however, are perceived as significantly less than six months ago.

Orders

A lack of orders is also an area where the situation has worsened since Spring 2022. Order intake in China continues to decline and 36% of the companies surveyed report that current order intake is below the normal range, compared with 32% in spring. Orders from abroad are equally affected, with 34% of respondents reporting that orders are below expectations, compared to 27% in the Spring.

“In the third Covid-19 year, the impact on business seems more severe than in the previous two years,” Barkowsky concluded. “Trust needs to  be rebuilt.”

www.vdma.org

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