Q2 Market Conditions for Chinese Market Entry Companies 22→67... "Ongoing COVID-19 Management Difficulties"

by Moon Chaeseok

Published 19 Jul.2020 11:00(KST)

Industrial Research Institute Analysis... Q2 BSI Recovery
Lowest Point Recorded After Statistics Compilation in Q1
Local Demand Remains Weak... Export Difficulties Intensify

On the 13th of last month in Beijing, as new cases of COVID-19 recently emerged, public security officers guarded the entrance of the locked-down Xinfadi Market. The coronavirus was detected on a cutting board used for slicing imported salmon. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok] The economic indicators for the second quarter of Korean companies operating in China showed a recovery compared to the first quarter. Companies anticipated continued sluggish demand and exports due to COVID-19. Nine out of ten companies judged that COVID-19 had a negative impact.

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 19th the results of the Business Survey Index (BSI) conducted from the 3rd of last month to the 2nd of this month on 212 Korean companies operating in China. A BSI above 100 indicates improvement compared to the previous quarter, while below 100 indicates deterioration.

Source: Korea Institute for Industrial Economics and Trade

Among the overall companies’ second-quarter BSI, market conditions and sales recorded 67 and 72 respectively. These figures showed a recovery from the first quarter’s 22 and 20, which were the lowest since statistics began in 2015. However, they were still lower than the 86 and 93 recorded in the fourth quarter of last year before the spread of COVID-19.

Source: Korea Institute for Industrial Economics and Trade

Local sales rose sharply to 89 from 22 in the previous quarter. Facility investment also increased to 82 from 68 in the previous quarter. The business environment recovered to 68, nearly reaching the 71 of the fourth quarter of last year and surpassing the 22 of the previous quarter. However, the 71 in the fourth quarter of last year was the lowest since the third quarter of 2017, which was 57.

Companies cited sluggish local demand (31.6%) as the biggest operational difficulty in the second quarter. The percentage of companies reporting export sluggishness (25.9%) also increased compared to 19.3% in the first quarter.

Looking at the second-quarter sales BSI by industry, the overall figure was 72, up 52 points from 20 in the first quarter.

Manufacturing rose from 19 to 76, and the automobile sector showed resilience by surpassing 100 for the first time in three quarters, rising from 9 to 110. Metal machinery increased from 19 to 87, electrical and electronics from 20 to 84, and chemicals from 16 to 67.

However, compared to the fourth quarter of last year before COVID-19, most sectors except automobiles showed a downward trend. In the fourth quarter of last year, manufacturing was 95, automobiles 97, metal machinery 90, electrical and electronics 103, and chemicals 97.

Source: Korea Institute for Industrial Economics and Trade

Companies identified the main factor eroding the second-quarter BSI as the impact of COVID-19. Overall, 84.9% of companies responded that the impact of COVID-19 was 'negative,' with 33% saying it was 'very negative.' However, these figures were lower than the 89.9% and 48.2% recorded in the first quarter.

By industry, 'very negative' responses were highest in other manufacturing (47%), electrical and electronics (39%), and automobiles (33%).

As detailed factors, decreased demand for goods and services (51%) was cited most frequently, followed by increased uncertainty (40%) and supply chain disruptions (19%).

The third-quarter forecast BSI was 92 for market conditions and 102 for sales, higher than the pre-COVID fourth-quarter forecast of last year (83 and 84). Local sales were forecast at 106, business environment at 99, and facility investment at 87.

Looking at the third-quarter sales forecast BSI by industry, automobiles scored 150, electrical and electronics 113, distribution 103, and manufacturing 102, all above 100. Textile and apparel (97), metal machinery (87), and chemicals (83) were below 100.