China outlook ‘strongly negative’ for German engineers, with poor demand and overcapacity named as culprits

China outlook ‘strongly negative’ for German engineers, with poor demand and overcapacity named as culprits

An association of German industrial engineering firms said their business remains tough in China this year due to slow orders and overcapacity in a recent survey – a phenomenon most members attributed to excess investment, rather than the government subsidies currently being investigated by the European Union.

German firms that design and build manufacturing equipment for China said an “economic slump” in China is “still having an impact” on their trade, according to the results of a survey by the 3,600-member Machinery and Equipment Manufacturers Association.

The survey of 220 of the association’s members – China subsidiaries of German firms – produced a “still strongly negative overall rating” of minus 28 percentage points. This represented a slight improvement over the minus 33 percentage points recorded in a late 2023 poll. For this iteration, members were canvassed from April 10 to 26.

The German trade group’s findings follow dire statements from European and American chambers of commerce in China this year on the second-largest economy’s investment climate.

Lack of orders remains the main problem for many mechanical engineering companies in China
Daniel Yoo

A 9.8 per cent drop in Chinese property investment and a slowdown in consumption hurt the economy in April.

In particular, China’s automotive and consumer electronics sectors lack new investment, the German association said.

These industries invested “heavily” in robotics and automation technologies during the pandemic and the equipment is just now starting to be used, the association’s Shanghai-based office manager Daniel Yoo said in a statement on Thursday on the survey results.

“The lack of orders remains the main problem for many mechanical engineering companies in China,” the statement read, with 35 per cent of respondents seeing this issue as a factor slowing growth.

Chinese manufacturers owned by local governments often lack money to install new equipment, especially in “old sectors” such as cement, said Alicia Garcia-Herrero, chief economist for the Asia-Pacific at the investment bank Natixis.

Overcapacity was also cited by survey respondents as a source of frustration. Among those polled, 46 per cent described “capacity utilisation” as below normal.

The survey found that 57 per cent of companies see signs of “overcapacity” in the Chinese mechanical engineering sector. But when respondents explained their reasoning in more detail, most said this trend was caused more by weak demand, “fluctuations” in demand and “excessive investment in new technologies” than by government subsidies.

“Due to the ongoing weakness in the property market, we are currently observing a shift of capital to the manufacturing industry and mechanical engineering, but this is not accompanied by a corresponding increase in demand at a national or global level,” the association’s chief representative Claudia Barkowsky said in the statement.

China rejects Western charges of manufacturing overcapacity, talk of which has sparked fears of dumping excess goods at low prices in other countries. European Union leaders are investigating the impact of Chinese subsidies on certain imports to Europe.

Association members expect muted improvement in their “business situation” this year after recording zero growth last year. Forty-eight per cent described their situations as “at least satisfactory” and 40 per cent called it “poor”.

Forty per cent of companies said they foresee improvement in their business and 10 per cent reported they “fear a deterioration”. In the fall, 20 per cent of companies had expressed that sentiment.

German companies expect improvement in their China business this year based on “positive signals from their customers and product inquiries from their customers”, Barkowsky told the Post.

“There have been good discussions and many interested visitors at recent trade fairs,” she said. “There are indications from the government regarding supportive policies, including an initiative for equipment replacement.”

The State Council released an action plan in March to promote large-scale equipment renewals through 2027.

Among the German industrial giants active in China are manufacturing technology firm Siemens, factory equipment producer ThyssenKrupp and culinary equipment maker GEA Group.



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