With a sluggish economy and weak demand and consumption taking a toll on China, U.S. corporate behemoths are feeling the pinch. They’re being forced to reassess their investment and expansion plans in the world’s second-largest market.
U.S. mobile chip developer Qualcomm announced in a statement on Sept. 20 that it’s laying off workers in China because of “continued uncertainty in the macroeconomic and demand environment,” indicating a longer-than-expected industry downturn and slow recovery.
“While we are in the process of developing our plans, we currently expect these actions to consist largely of workforce reductions, and in connection with any such actions we would expect to incur significant additional restructuring charges, a substantial portion of which we expect to incur in the fourth quarter of fiscal 2023,” Qualcomm stated.
While it reported that Qualcomm would “lay off some employees in its Shanghai unit,” Nikkei Asia cited social media posts by employees who reported “significant” layoffs in Shanghai.
On Sept. 18, San Diego-based cancer drug company Kinnate Biopharma also announced that it would lay off 70 percent of its workers as part of a massive restructuring plan that will include separating from the employees at Kinnjiu Biopharma, the company’s subsidiary in China.
The layoffs joined a slew of cutbacks in recent months by their U.S. peers.
In May, carmaker Ford announced plans to slash costs in China as it attempts to recover from a persistent sales decline in the world’s largest auto market. Ford’s sales in China have been declining since 2016, prompting the automaker to restructure its China operations, which could result in 1,300 job cutbacks.
Forced by the market downturn this year, Intel and Micron also slashed jobs in China. Those cuts followed a substantial downsizing in 2022 involving U.S. chipmaker Marvell Technology’s research and development team in China.
China has set its economic growth target in 2023 at just 5 percent—its lowest target since 1991. After a decade of overbuilding, its real estate industry is collapsing. Worse, Chinese consumers have been unable to consume their way out of the depression that has gripped the country since the beginning of the COVID-19 outbreak.
Demand Woes, Supply Shocks
The slowing Chinese economy, Mr. Tiruchelvam said, is leading to a decline in consumer spending, which in turn is affecting the sales and revenue of U.S. companies operating in China.“As the economy slows, and the demand for products and services falls, many U.S. companies that rely on Chinese consumers face growth challenges,” he said.
The downturn is also threatening increased rivalry from local businesses, making it difficult for U.S. companies to maintain their market share, Mr. Tiruchelvam said.
Qualcomm reported a 25 percent decrease in sales of mobile chips in the third quarter of 2023 because of the weaker global economy and slow growth in China, which has led to lower sales 0f smartphones.
But Qualcomm’s move also comes in the wake of Huawei’s quiet release in China of new 5G smartphones using its own in-house chipset. The Chinese breakthrough could have an impact on U.S. chipmakers’ sales in China.
Qualcomm was the only mobile processor developer that was granted licenses to continue shipping downgraded 4G chipsets to Huawei after the Biden administration added the Chinese tech company to its trade blacklist. The chipmaker is now predicting that there will be a further decrease in handset sales this year, by at least a high-single-digit percentage.
“The demand recovery has become more stagnant compared to the supply recovery after China’s reopening,” Hong Kong-based Natixis CIB Research stated in a subscriber note accessed by The Epoch Times.
China’s retail sales—a gauge of consumption—rose by 2.5 percent in July, down from a 3.1 percent increase in June, and missed analysts’ forecasts of 4.5 percent growth despite the summer travel season. It was the slowest growth since December 2022.
The supply side also started to grow at a slower pace, but its recent growth rate was still only moderately lower than the pre-COVID-19-pandemic level, up by 3.7 percent in July 2023 from a year ago, but below the 4.4 percent increase analysts had expected.Looking Beyond China
Consequently, U.S. firms are shifting their focus away from China and toward other markets.“More than 90 percent of the North American manufacturers we surveyed have relocated some production from China in the past five years,” global firm Boston Consulting Group stated in a September note accessed by The Epoch Times. There’s a similar plan to make such moves in the next five years, according to the note.
Mexico, Southeast Asia, India, Turkey, and Morocco are among the most competitive destinations.
“Thus, the stimulus policies focusing on consumption and investment sentiment [are] key to watch for the market during the current economic cycle,” Natixis stated in its note.
Domestic demand in China will be especially crucial because the nation’s foreign market is also decreasing rapidly. China’s imports and exports fell much faster than expected in July, with the pace of exports declining at its fastest rate since the onset of the COVID-19 pandemic in early 2020.
