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China’s Economic Slowdown Rattles Japanese Companies, Prompting Strategic Shifts

Japanese firms, including Fanuc and Murata, grapple with declining profits in China, prompting reevaluation of investment and business strategies
Japan
f 6954.TSE m 6981.TSE Blue Chip 150 Tech 350
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The slowdown in China’s economic growth is reverberating through Japanese businesses, particularly those like Fanuc and Murata Manufacturing that have relied heavily on the country’s previously robust market. Out of 17 Japanese companies with significant sales in China, 12 reported a decline in net profit for the July to September quarter. Despite this, Fanuc and Murata Manufacturing upgraded their earnings forecasts for the fiscal year, primarily due to the weakening yen. The overall combined net earnings of these companies saw a 20% year-on-year drop, a stark contrast to the 50% profit growth seen among companies listed on the prime section of the Tokyo Stock Exchange. This economic shift is prompting a reevaluation of investment and business strategies, with some companies considering adjustments to production scales and the allocation of resources.

Fanuc, a leading industrial robot builder, experienced its first profit decline in four years, with net profit falling 20% to 33.6 billion yen. Sales in China saw a significant drop of 27%, while orders decreased by 35%. Similarly, sensor maker Keyence saw its profit decrease for the first time in 11 quarters, citing uncertain business sentiment in China. Even electronics manufacturer Omron ended up in the red for the quarter, as capital investments related to semiconductors and storage batteries were postponed, primarily in China. Murata Manufacturing, a major iPhone parts supplier, faced a sixth consecutive quarter of profit decline, with net profit falling 12% to 75 billion yen, largely due to reduced consumer demand in China.

The impact of China’s property market challenges is also being felt. Toto, a toilet maker, revised its earnings forecast downward for the fiscal year ending March 2024, citing a decline in sales of bathroom products. The outlook for operating profit in mainland China’s housing equipment business was halved from previous projections. Business leaders are expressing concerns about the future of China’s economy, with expectations of a slow recovery in various sectors. This economic slowdown is prompting a shift in business strategies, with companies reevaluating their investments and resource allocations in China.

In a September survey conducted by the Japanese Chamber of Commerce and Industry in China, approximately 50% of the 1,400 responding companies indicated that they either plan to reduce investment or abstain from further investments in China in 2023. Nidec, a major motor manufacturer, is considering revising its strategy for EV parts sales, which had heavily relied on the Chinese market. Experts suggest that strategies hinging on China’s previous economic growth are now facing a critical juncture.

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