South China Morning Post

China outlook ‘still negative’ for German engineers

Firms working on the mainland blame low demand and overcapaci­ty

An associatio­n of German industrial engineerin­g firms said business remained 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 being investigat­ed currently by the European Union.

German firms that design and build manufactur­ing equipment for China said an “economic slump” in the country was “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.

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 lacked new investment, the German associatio­n said.

These industries invested “heavily” in robotics and automation technologi­es during the pandemic and the equipment was just now starting to be used, the associatio­n’s Shanghai-based office manager Daniel Yoo said in a statement 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 lacked money to install new equipment, especially in “old sectors” such as cement, said Alicia Garcia-Herrero, chief economist for Asia-Pacific at 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 57 per cent of companies saw 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. EU 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 firms said they foresaw improvemen­t in business and 10 per cent reported they “fear a deteriorat­ion”. In autumn, 20 per cent of companies had expressed that sentiment.

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