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The CEO of Swedish-Swiss multinational industrial and engineering group ABB said he has been “disenchanted” by the state of the Chinese market, adding he expects conditions will prove difficult for the remainder of the yr.
“China is probably not developing as we hoped to start with of the yr,” said Bjorn Rosengren, CEO of ABB, speaking with CNBC’s Joumanna Bercetche on Wednesday, adding ABB has been impacted by a “softening” in China’s property sector.
Rosengren said that a decline in Chinese real estate development and hefty debts faced by the sector have meant pain for its residential construction segment, which is more cyclical and subsequently liable to changes within the economy.
“We’re pretty pessimistic in the meanwhile” on China, said Rosengren. “We thought to start with of the yr that we must always see some recovery from the Covid period, but I feel everybody has been pretty disenchanted.”
“China continues to be pretty soft. It’s a giant market though, so it is not dead. It’s still living there, but probably not developing as we would hoped. I feel it’s going to be difficult for the remainder of the yr.”
ABB is one of the biggest firms globally operating within the realm of industrial manufacturing. With its machines embedded in so many major global firms’ factories, the corporate’s performance serves as something of a barometer for the health of the manufacturing sector — and the broader economy.
Notably, China, a powerhouse of manufacturing also known as “the world’s factory” as a result of the country’s influence on global trade, is the corporate’s second-biggest market.
ABB says it is the leading robotics player within the Chinese market, accounting for greater than 90% of sales from locally-made products, solutions and services there.
Nevertheless it has been showing signs of weakness.
Within the second quarter of 2023, ABB reported a 2% increase in orders on a comparable basis, to $8.7 billion. Comparable revenues were up 17%, to $8.2 billion. Income from operations, meanwhile, climbed 15.9%, to $1.3 billion. Nevertheless, in China, the firm saw its order intake decline 9% on a comparable basis within the period.
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Greater than 50 Chinese property developers have defaulted or did not make payments within the last three years, in keeping with credit rankings agency Standard and Poor’s.
In July, Fitch Rankings pulled its credit rankings for Central China Real Estate Limited, a Hong Kong-based investment holding company primarily engaged in property businesses.
More recently, economists have flagged concerns with structural issues in China’s economy, corresponding to debt, an aging population and young people unable to seek out work, and a growing fear of a “decoupling” from the remainder of the world as tensions with america reach boiling point.
The Chinese real estate sector has been in a state of turmoil during the last two years, most notably marked by the financial woes of heavily indebted property developer Evergrande, which earlier this month filed for U.S. bankruptcy protection.
On Monday, Evergrande’s shares lost as much as 87% of their value after the corporate resumed trading for the primary time since March 21, 2022. The shares have struggled to get well since.
A silver lining?
Rosengren said that, despite the weakness it is seeing in China, electric mobility is proving a fast-growing area for the corporate globally — especially in China.
“One of the positive things is EV vehicles, which are also getting a position globally as you’ve got seen also in Europe today, Chinese cars from that perspective,” said Rosengren.
“I feel that is one of the sectors which has been good, which had some positive for the robotics market. But I feel actually the true estate construction part which is low and has been low for quite a while.”
ABB is currently planning an initial public offering for the e-mobility business, which in raised 325 million Swiss francs ($370.6 million) from investors in a pre-IPO placement.
Rosengren said that the majority businesses and governments are “aligned” on the necessity to push toward a green energy future, so the ceiling for growth stays high.
In Europe, especially, greater impetus has been placed on the necessity to speed up the energy transition as a result of Russia’s invasion of Ukraine and resulting restrictions of natural gas supplies to the continent.
“Energy generation is of course one of the sectors that should go green,” Rosengren said.
“You furthermore mght need to accumulate infrastructure, electrification infrastructure globally. And I feel that is what we’re feeling today and that is what we’re seeing and that is why we see still very strong market in electrification and that is why that is vital.”
ABB has an e-mobility division chargeable for developing electric charging solutions, that are the backbone of the EV industry.
Still, this part of the business has proven difficult as macroeconomic conditions have deteriorated.
Within the second quarter, ABB’s e-mobility unit lost $67 million, which the corporate attributed to “inventory related provisions in addition to technology investments triggered by a shift back to a more focused product technique to secure a continued leading market position.”
Correction: This text has been updated to accurately reflect Bjorn Rosengren’s title as ABB chief executive.