Robotics Company Fuels Concerns about China Slowdown
January 11 2019 - 01:46PM
Dow Jones News
By Ruth Bender
BERLIN -- Concerns are rising in German boardrooms about the
impact of the economic slowdown in China on its largest European
trading partner.
German industrial robot maker Kuka AG on Friday became the
latest German company to warn that China's cooling economy is
affecting the company's business. It cited uncertainties in the
Chinese automation market as one reason for what it said would be
lower-than-anticipated sales and a slimmer profit margin in
2018.
German companies have been among the most heavily invested
foreign players in China. For years, German midsize engineering
businesses have been delivering the capital goods that China needed
to power its factories and build its infrastructure as its economy
was growing at breakneck speed.
China is Germany's main trading partner, with bilateral trade
between the two totaling EUR188 billion ($215.69 billion) in 2017,
according to German government statistics. That year, German
exports to China totaled EUR86 billion ($98.64), making China the
third-largest market for German exports after the U.S. and France.
Germany was the world's second-largest non-Asian importer of
Chinese goods.
Some 5,200 German companies in China employ more than one
million people, according to Germany's BDI industry lobby.
Industrial conglomerate Siemens AG, chemicals giant BASF, car maker
Volkswagen AG and thousands of others have invested billions there.
Total German investment in China totaled EUR13 billion ($14.92)
through the end of 2017, according to BDI estimates.
But China's economy has been slowing faster than expected
recently. In December, Chinese factory activity hit its lowest
level in nearly three years, and official data showed that profits
from big Chinese industrial firms declined in November for the
first time in three years. Chinese consumers have cut back on
spending, leading to a decline in sales of cars and other goods.
Apple Inc. this month blamed this slowdown for stumbling iPhone
sales.
Economists at Bank of America Merrill Lynch said this week they
expected Germany to have entered a technical recession -- two
consecutive quarters of negative economic growth -- in the second
half of 2018. The Chinese slowdown was one of several reasons, the
economists wrote, saying China's contribution to German GDP growth
had fallen to zero last year.
With exports to China making up only part of German companies'
activities in and with the country, that may in fact underestimate
how much the slowdown is hurting German corporations.
"The current growth rates in China have not been so low since
the financial crisis," Kuka interim Chief Executive Peter Mohnen
said in a conference call Friday.
Kuka, which makes automation equipment and software, was
acquired in 2017 by Chinese appliance-make Midea Group. Midea's
hostile takeover bid for Kuka in 2016 was a milestone in persuading
Berlin to tighten laws protecting companies in sensitive sectors
against foreign acquisitions -- a measure widely seen as targeting
China's yearslong spending spree in the country.
The current slowdown has forced Kuka to abandon its 2020
targets, Mr. Mohnen said. The company also is launching a plan to
cut some EUR300 million ($344.45 million) in costs including job
cuts by 2021 as a result of slower sales growth.
Kuka shares were trading down 9% early Friday after the company
said it expected full-year revenue of EUR3.2 billion ($3.7
billion), down from its prior forecast of EUR3.3 billion. Shares
recovered some ground and closed down 4.8%.
The Chinese robotics market remains a growth driver for Kuka,
despite the economic slowdown, and is far from saturated, Mr.
Mohnen said. Kuka said it planned to expand its products and
production capacities in China to better cater to the Asian market.
China contributed roughly 20% of its sales in 2017.
In the auto market, BASF in December said customer demand in
China had slowed significantly, in part because of U.S.-China trade
frictions, and warned of lower-than-expected profits for 2018.
Analysts expect more German companies to come forward with
similar warnings about the fourth quarter.
"We are very concerned about China," Christian Dahlheim,
Volkswagen AG sales chief told reporters Friday. "We expect the
market to be flat [this year] and are preparing for that scenario."
Volkswagen Friday said car sales in China dropped 13% in
December.
On Thursday, German lighting company Osram's Chief Executive
Olaf Berlien told German newspaper Augsburger Allgemeine that it
was negatively affected by the decline in auto sales in China in
the last quarter of 2018.
Amid the hand-wringing, Germany's politically influential BDI
Federation of German Industries shook up the conversation Thursday
when it called on German and European policy makers to take a
tougher stance against China's state-driven economic model.
"Despite the appeal of the Chinese market, it is becoming
increasingly important for companies to keep an eye on the possible
risks and, if necessary, to balance them out by further
diversifying," the BDI wrote in a new, unusually candid and public
position paper.
--William Boston contributed to this article.
Write to Ruth Bender at Ruth.Bender@wsj.com
(END) Dow Jones Newswires
January 11, 2019 13:31 ET (18:31 GMT)
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