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Japanese Firms Feel the Impact of China’s Economic Downturn

Sluggish Chinese Market Affects Profits for Electronic Giants Murata and Keyence Among Others
Japan
m 6981.TSE k 6861.TSE Blue Chip 150 Tech 350
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The economic slowdown in China is taking a toll on the earnings of Japanese corporations, particularly those in the electronics sector like Murata Manufacturing and Keyence, highlighting the challenges faced by companies heavily reliant on the Chinese market. According to recent earnings reports, out of 21 Japanese companies with strong ties to China, 18 have experienced a decline in net profit for the nine months ending December compared to the previous year.

The downturn in consumer spending within China has notably impacted Murata Manufacturing, which generates half of its revenue from the region. The company reported an 18% decrease in consolidated net profit to 174.5 billion yen ($1.17 billion) for the latest three quarters, alongside an 8% drop in sales from greater China. This decline is attributed to reduced Chinese demand for smartphones and personal computers, with Murata Chairman Tsuneo Murata expressing skepticism about a rapid recovery in the Chinese smartphone market.

Other Japanese firms facing challenges include Toto, with profits from its Chinese operations halving due to the real estate downturn, and confectionary maker Fujiya, which saw its net profit plummet by 70% for the full year through December. These setbacks come as China’s purchasing managers index remains below the critical threshold of 50 for the fourth consecutive month, signaling prolonged sluggishness in business activities and income distribution.

Furthermore, industrial robot maker Fanuc and motor manufacturer Nidec have reported significant declines in orders and profits, respectively, linked to weak capital investment and intense price competition in China. Despite a 20% rise in net profit across approximately 380 Japanese companies reporting earnings, the outlook for China in 2024 remains uncertain, with about 40% of companies surveyed by the Japanese Chamber of Commerce and Industry in China anticipating further economic challenges.

This trend underscores the intricate relationship between the Chinese economy and Japanese corporate performance, revealing the need for businesses to adapt to shifting market dynamics and explore diversification strategies to mitigate risks associated with economic downturns in key markets.

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