China's Economy Shows 'Warning Signs'... Growing Concerns for Our Companies

Factors Causing Instability in the Chinese Economy
① Real Estate-Driven Financial Instability
② Consumption Contraction
③ Slowdown in Production and Exports

Seoul Jung-gu Korea Chamber of Commerce and Industry. / Photo by Jinhyung Kang aymsdream@

Recent warning signs in the Chinese economy have deepened concerns among our companies.

The Korea Chamber of Commerce and Industry (KCCI) stated in its report "Recent Trends in the Chinese Economy and the Impact on Our Companies," released on the 30th, that the unstable factors facing the Chinese economy include financial instability in the real estate market, contraction in domestic consumption, and a slowdown in industrial production and exports. It expressed concerns that these factors could negatively affect our companies aiming for a performance rebound in the second half of the year.

The instability in the Chinese economy began with real estate. China’s largest real estate company, Biguiyuan, is facing a risk of default, and defaults have extended to developers and financial firms such as Soho China and Zhongrong Trust, increasing financial instability in the real estate market and raising concerns about an economic downturn.

Domestic consumption is also shrinking. The retail sales growth rate, which rose to 18.4% in April due to the reopening effect, dropped to 2.5% in July. Combined with high youth unemployment and deflation concerns, consumer sentiment remains weak. The industrial sector is also showing sluggish performance in production growth rate, manufacturing PMI, and export results.

A KCCI official said, "Our companies are hoping for an economic rebound in the second half of the year based on the recovery of the Chinese economy, but concerns about the Chinese economy are growing, deepening their worries. If the Chinese economy slows down, our companies will inevitably be affected in terms of performance."

8 out of 10 Companies Say "Impact on Sales and Performance" or "Concerns if Prolonged"

The unstable factors in the Chinese economy have already been directly or indirectly affecting our companies. According to a survey conducted by KCCI targeting 302 export companies to China, 32.4% responded that the recent Chinese economic situation is ‘already affecting sales and performance,’ and 50.3% said they ‘are concerned if it prolongs,’ indicating that the majority of companies are either being affected or expect to be affected.

When asked which part of their business performance was affected, 42.7% of respondents said ‘decreased sales of consumer goods within China,’ 32.7% said ‘decreased sales of intermediate goods such as parts and materials,’ and 16.6% said ‘deterioration of local subsidiary performance.’

The most concerning unstable factors in the Chinese economy were ‘domestic consumption slump’ at 33.7%, ‘sluggish industrial production’ at 26.7%, followed by ‘prolonged US-China trade dispute’ at 20%, and ‘strengthened customs procedures and trade barriers’ at 19.6%. It was found that companies are more worried about the worsening domestic economic situation in China than external risks.

More than Half of Companies Report "Poor Performance Compared to Early-Year Targets"... Exports to China Also Down 25.9% This Year

When asked about their current business performance compared to early-year targets in the Chinese market, more than half of the companies responded with ‘below target’ (37.7%) or ‘very poor’ (14.7%). Meanwhile, 45% said they ‘achieved target levels,’ and only 2.6% reported ‘exceeding targets’ (2.3%) or ‘greatly exceeding targets’ (0.3%), indicating that actual performance often falls short of reopening expectations.

In fact, exports to China from January to July this year decreased significantly by 25.9% compared to the previous year. Major export items also showed poor performance: semiconductors, the largest export item, fell by 40.4%, displays by 45.7%, and petrochemicals by 22.5%. Representative consumer goods such as cosmetics (-25.3%) and wireless communication devices (-12.9%) also struggled.

Regarding future prospects for the Chinese economy, 79.0% of companies said ‘the downturn will continue,’ citing ‘sluggish industrial production’ (54.5%) and ‘slowing consumption trends’ (43.0%) as the main reasons. Conversely, 21.0% of companies that responded ‘the Chinese economy will gradually improve’ most frequently cited ‘the effect of the Chinese government’s economic stimulus measures’ (76.2%), with 23.8% expecting a ‘reopening effect.’

Strategies being prepared to respond to the unstable factors in the Chinese economy include diversification of sales channels to third countries (29.7%), relocation of production facilities to third countries (6.3%) as part of a China exit strategy, and China-focused strategies such as product diversification in the Chinese market (18.7%) and strengthening price competitiveness (20.0%). Notably, 25.0% answered that they have ‘no specific response plans’ prepared.

Kim Hyun-soo, head of the Economic Policy Team at KCCI, said, "There is an observation that the recent downturn in the Chinese economy is part of a long-term structural adjustment process such as deleveraging, so it is necessary to consider response measures with a long-term perspective. It is important to explore various options suitable for each company’s situation, such as the China Plus One strategy, which diversifies sales channels and production bases without giving up the Chinese market, or a super-gap technological innovation strategy that secures a clear competitive advantage."

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