Western companies are backing away from China
The Chinese slowdown is forcing many Western companies to take a hard look at their businesses there, leading many to reduce investments, costs and product lines and to tackle increasing bad debts.
Double digit growth rates during the first decade of the millennium lured scores of Western companies to invest heavily in China. But in recent years growth has slowed sharply, hitting demand and raising doubts about the financial health of Chinese companies. A recent equities market rout has dashed hopes China will, in the coming years, return to the robust growth it saw in the past. "We had five fabulous years in China, of course, where we grew strong doubledigit, and it has been gradually slowing down. Currently, in China we had negative order intake," said Frans van Houten, chief executive of Dutch electronics group Philips NV , on a call with analysts on Monday.
"Going forward, we need to be much more modest on expectations with regard to China growth; that's just being realistic," he said. The size of China's economy means executives are not talking about withdrawing from the market but they say business cannot continue as normal. "I'm optimistic long-term and mediumterm that China will come back. Short-term, we need to manage through the drought that we see," said Ulrich Spiesshofer, CEO of Swissbased industrial conglomerate ABB . ABB is carefully managing costs and working hard to convince customers its products offer value despite premium prices. Stuart Rowley, vice president at Ford Motor Company , said his company had responded to the softening market by cutting production.
Such actions have knockon impacts on suppliers, which are also often Western. French auto components group Valeo said slackening demand from Chinese car factories was forcing it to review its growth plans. "We see the growth rate slowing down. And in the summertime, some of our customers are extending their summer holidays ... Of course, we adapt hiring and CapEx (capital expenditure) to current market conditions," said CEO Jacques Aschenbroich.