Q1 Worst Performance Since 2015 for Chinese Market Entrants... "Car BSI Plummets from '97' to '9'"

Industrial Research Institute Analysis Results... Q1 BSI Falls to Lowest Since Statistics Began
Local Demand and Exports Slump... Local Sales, Facility Investment, and Business Environment Worsen 'Surrounded on All Sides'
Q2 Market and Sales Expected to Recover... Facility Investment Outlook Below Baseline for Second Consecutive Quarter

It has been revealed that Korean companies operating in China are suffering from severe demand slumps due to the novel coronavirus disease (COVID-19) crisis. (Photo by AFP)

[Asia Economy Reporter Moon Chaeseok] Korean companies operating in China have been hit hard by the COVID-19 pandemic. The business condition and sales analysis indices for the first quarter plummeted to their lowest levels in six years since 2015. In particular, local demand and exports in the automobile, metal machinery, and chemical sectors were severely sluggish.

The Korea Institute for Industrial Economics & Trade, the Beijing office of the Korea Chamber of Commerce and Industry, and the Korean Chamber of Commerce in China announced on the 26th the results of a Business Survey Index (BSI) based on a survey conducted from the 11th of last month to the 9th of this month targeting 218 Korean companies operating in China. A BSI above 100 means that more companies responded that conditions improved or increased compared to the previous quarter, while a BSI below 100 indicates the opposite.

The overall first-quarter BSI for business conditions (22) and sales (20) both plunged to their lowest levels since statistics were first compiled in 2015. In the previous quarter, these were 86 and 93, respectively.

Local sales dropped to 22, which is one-fifth of the previous quarter's 97. Facility investment was recorded at 68, significantly below 100. Although it barely surpassed the 100 mark in the fourth quarter of last year after two quarters, it sharply declined again. The business environment also fell from 71 points in the previous quarter to 22 points. The 71 points in the fourth quarter of last year was already the lowest since the third quarter of 2017 at 57, but this time it deteriorated to a level difficult to compare with the past.

Companies cited sluggish local demand (23%) as the biggest management difficulty in the first quarter. The proportion of companies reporting export sluggishness (20.7%) increased compared to 12.9% in the fourth quarter of last year. Labor shortages and rising labor costs (12%) and intensified competition decreased.

Looking at the first-quarter sales BSI by industry, manufacturing showed the largest drop, falling from 95 to 19. Automobiles dropped from 97 to 9, metal machinery from 90 to 19, chemicals from 97 to 16, and textile manufacturing from 73 to 27. Even the electrical and electronics sector, which had been above the baseline in the fourth quarter of last year, plummeted from 103 to 20, and other manufacturing fell from 106 to 25. The distribution sector also dropped from 80 to 23.

Companies responded that the COVID-19 impact was the main factor eroding the first-quarter BSI. In the survey on the impact of the COVID-19 situation, 89.9% of all companies answered 'negative.' Among them, 48.2% responded 'very negative.'

By industry, electrical and electronics, chemicals, textiles and apparel, other manufacturing, and distribution sectors had relatively many 'very negative' responses. The proportion of overall negative responses, including 'negative,' was high in automobiles and other manufacturing. The most cited detailed factor was a decline in demand for goods and services (58%). Management activities affected by uncertainty (44.7%) and supply chain disruptions (43.4%) followed.

The BSI outlook for the second quarter is expected to remain at the level of the fourth quarter of last year. Business conditions stood at 83, similar to the previous quarter. The first-quarter outlook BSI projected in the fourth quarter of last year did not reflect the COVID-19 situation, so the fact that such figures were recorded indicates that many companies expect a rebound in the second quarter. Sales are expected to exceed 100 for the first time in three quarters, at 111.

However, looking at the items individually, this outlook can be understood as a kind of 'base effect' where the second quarter improves simply because the first quarter was so poor. The local sales outlook BSI was 115, facility investment 95, and business environment 90. Facility investment fell below 100 for the first time since statistics began in the fourth quarter of last year and remained below the baseline for two consecutive quarters. Although the business environment rose after four quarters, considering that it was 75 in the fourth quarter of last year?the lowest since the fourth quarter of 2017?it is not a figure to be optimistic about.

Looking at the second-quarter sales outlook BSI by industry, manufacturing is expected to exceed the baseline for the first time in three quarters at 109. Automobiles at 134, metal machinery at 113, and chemicals at 109 all exceeded 100. However, electrical and electronics (97) and textiles and apparel (93) showed greater concerns about continued poor performance. The distribution sector exceeded the baseline at 123.

This content was produced with the assistance of AI translation services.