Lockdowns in China become a heavy burden

Corona-related lockdowns and restrictions in China leave deep marks on local German machinery and plant manufacturers. Only a minority of companies currently anticipate an improvement in the business situation in the next six months.

  • One out of two machine and plant manufacturers is affected by the production stoppage
  • 2022: 3% revenue growth expected
  • Transportation difficulties within China are a major stumbling block
  • Localization continues to grow

Frankfurt, 05/10/2022 Corona-related lockdowns and restrictions in China are leaving deep scars on local machinery manufacturers and factories. A survey conducted by VDMA, Europe’s largest mechanical engineering industry association, among 850 member companies based in China, shows that 28% of these companies already rate the current business situation as bad. 27 percent of the companies surveyed still rate the current business situation as good and 45 percent as satisfactory. This is the first time in two years that the balance between positive and negative ratings has fallen below zero (minus 1 percentage point). In the fall, the value was still plus 33 percentage points; by this time, positive sentiment had far outweighed negative sentiment. The vast majority of companies are increasingly faced with factors that hinder their business operations in China. While in the fall of 2021, 55% were already complaining about factors that hindered business, 87% are now doing so. The main problem is currently the containment and restrictions related to Omicron infections in various cities and regions of the country – a challenge for 98% of the companies concerned. Nearly one in two businesses (49%) had to shut down completely due to shutdowns, with 40% having to shut down for at least three weeks, much longer. “An elimination of these bottlenecks is not yet in sight. The resumption of production, especially in Shanghai, is very slow.

The costs of the so-called “closed loop” – employees work and live on the factory premises – are high, the approval process is difficult and additional costs are to be expected for employee supplements, for beds, for disinfection and other things,” says Claudia Barkowsky, general manager of VDMA in China.

The resumption of production, particularly in Shanghai, is very slow.

Claudia Barkowsky, Managing Director VDMA China

Capacity utilization has fallen sharply
Capacity utilization of machinery and plant manufacturers in China saw its steepest decline in six months to date. Currently, 37% of companies are reporting capacity utilization below the long-term average. In the fall of 2021, this figure was only 14%, and only 7% a year ago. Currently, 26% of companies report higher than normal usage and 37% report normal levels. “The low level of capacity utilization in many companies is not currently due to a weak order book, but rather to the temporary forced closures. If the company is outside the risk areas, it can operate almost normally. “, explains Barkowsky.

Order intake is down
Order intake is also down in China. A third (32%) of businesses surveyed say current order intake is below normal, compared to just 17% in the fall. Orders from abroad are also affected. 29% said orders exceeded expectations. No prospect of improvement over the next six months Only a minority of companies (24%) expect the business situation to improve over the next six months. On the other hand, 29% say that the situation will deteriorate further, 47% expect the situation to remain the same. In addition to production stoppages, bottlenecks in materials and raw materials continue to be an obstacle for companies. This is mainly due to transportation difficulties in China. The pressure of localization has increased: while it was a challenge for only 3% of companies in the fall of 2021, it is now 13%.

Revenue growth in 2021 reaches an impressive 21%
The sales development in China in 2021 has been extremely satisfying for many machine and plant manufacturers. In the fall of last year, participants estimated their growth for 2021 at an average of 22%; 21% have been achieved, as revealed by the current spring survey. Expectations for 2022, however, are significantly lower, with growth of just 3%. In the fall, a growth of 10 percent was still expected. Basically, 58% of companies still expect growth this year, 14% expect no growth and 28% a decline. “The outlook for 2022 was already cautiously optimistic by Chinese standards in the fall of 2021. Companies had assumed there would be restrictions during the Winter Olympics in February, which then failed to materialize. No one expected that Omicron, on the other hand, would bring economic activities to such a standstill. Previously, China had always succeeded in quickly containing pockets of infection and minimizing the impact on the economy. It doesn’t look like that’s going to happen now,” summed up the general manager of VDMA China.