Strict Covid Measures Are Hindering China’s Manufacturing

China’s zero-Covid policy is significantly hindering the business of local machinery and plant manufacturers. This is shown by the results of the VDMA’s autumn survey of 850 member companies based in China. According to the new survey, 23 percent of the companies rate the current business situation as good, 54 percent as satisfactory, and 23 percent as poor. The balance of positive to negative assessments is zero and thus only one percentage point higher than in the spring.

“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 were canceled or postponed in the second half of the year, and curfews continue to be imposed. The frustration is high,” explains Claudia Barkowsky, Chief Representative of the VDMA in China.

Still no prospect of improvement in the next six months
Only one in four companies (23 percent) expects the business situation to improve in the next six months. Twenty-five percent indicated that the situation would continue to deteriorate.
“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,” Barkowsky explains.

“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.”

Claudia Barkowsky, Managing Director VDMA China

Capacity utilization remains at a low level
A similar picture to that of the general business situation can be seen in capacity utilization: it has improved only slightly compared to the previous survey and remains well below previous levels. Currently, 29 percent of the companies are reporting capacity utilization below the long-term average. In spring 2022, it had still been 37 percent. Twenty-two percent of the companies reported above-normal utilization. The balance of positive to negative ratings is thus minus 7.

Braking factors led by Covid-19 restrictions
Two-thirds of the companies (70 percent) face factors that hinder their business operations in China. Although the number of companies affected fell by 17 percentage, it remains high. In spring, in times of lockdown, the figure was still at 87 percent. The main problem is the ongoing Covid-19 restrictions, which severely restrict both, international travel and domestic mobility. They are a challenge for every second company (54 percent). In addition, shortages of materials and raw materials are a particular problem, with 29 percent of respondents citing difficulties here. On the other hand, restrictions due to local content requirements are perceived as significantly less restrictive than six months ago (from 11 percent to 4 percent).

Incoming orders from home and abroad remain weak
Lack of orders is one of the few factors where the situation has actually worsened since spring 2022 (as a  hindering factor from 17 percent in spring to 27 percent in fall). Order intake in China continues to decline. Thirty-six percent of the companies surveyed report that current order intake is below the normal range, compared with 32 percent in spring. Orders from abroad are equally affected, with 34 percent of respondents reporting that orders are below expectations, compared to 27 percent in the spring.

Sales growth of 5 percent expected for 2022
While the average growth of machinery and plant manufacturers in China in 2021 was still 22 percent, companies expect only 5 percent this year – at least somewhat more optimistic than in spring, when an average of 3 percent had been expected. With an increase of 6 percent, expectations for 2023 are only slightly above the expectations for this year. “2022 is a particular challenge for many companies in China. In the third Corona year, the impact on the business seems more severe than in the past two years. Trust needs to be rebuilt,”  summarizes the VDMA China Chief Representative.