ABB's Bjorn Rosengren commented that the progress made in China this year has not met expectations, pointing to weakness in the nation's real estate market as the primary reason. The Chinese real estate sector has been experiencing difficulty for the past three years, impacting the fortunes of Evergrande, a large developer, particularly hard. China is ABB's second largest market, having earned the moniker of "the world's factory" because of its impact on global commerce.
Bjorn Rosengren, CEO and chairman of ABB, expressed his dissatisfaction with the Chinese market situation, stating that it is not progressing as expected at the start of the year. He noted the weak residential construction sector, which is influenced by changes in the economy, is taking a toll on the multinational robotics firm. Rosengren went on to say, "We are pretty pessimistic at the moment on China. We thought in the beginning of the year that we should see some recovery from the Covid period, but I think everybody has been pretty disappointed" and expects that conditions will remain difficult for the remainder of the year.
ABB, one of the largest companies investing in industrial manufacturing, is highly dependent on the Chinese market. The country's influence on global trade has earned it the name "world's factory," and ABB accounted for more than 90% of locally-made products, solutions and services sold there. Nevertheless, its second quarter report revealed a 2% increase in orders, but a 9% decrease in order intake from China on a comparable basis in the same period.
For the past three years, over 50 Chinese property developers have seen their payments defaulted or gone unpaid, according to Standard and Poor's. In July, Fitch Ratings decided to remove credit ratings from Central China Real Estate Limited, a Hong Kong-based investment firm whose primary concern is property business. Moreover, economists predict issues such as debt, the aging population, a lack of job opportunities for young people, and an escalated international tension with the U.S. as indicators of a widening economic chasm. 2 years of notability have meant financial strife for the Chinese real estate sector, especially for Evergrande, which declared bankruptcy in the U.S. last month. On Monday, the company's shares dropped 87% when trading resumed after a two-month hiatus, and they have still not been able to recover.
Rosengren stated that, even though ABB is seeing weak performance in China, the company’s electric mobility sector is quickly expanding around the world, specifically in China. Additionally, ABB is currently in the process of an initial public offering for its e-mobility business, which raised 325 million Swiss francs from investors in a pre-IPO arrangement. Rosengren further stated that various businesses and governments are all in agreement regarding the need to move towards a greener energy future, hence the potential for growth is great. With respect to Europe in particular, they are pushing hard towards the energy transition, particularly due to the Russian occupation of Ukraine and the limitations it presents on natural gas supply to the continent. He additionally noted that energy generation needs to be green and there is a need for electric infrastructure globally. This is the area that ABB’s e-mobility division focuses on, providing EV charging solutions. However, in the second quarter of the year, the e-mobility unit lost $67 million, largely due to inventory provisions and technology investments caused by a return to a product-focused strategy.
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