In the no 1 2016 newsletter InFocus we focus on the Chinese economy and the dramatic changes in the market. We asked Anders Forsén, CFO at NCAB Group, about the impact the changes in the Chinese economy has on the PCB market.
What are the differences today compared to previous downturns, and what are the consequences?
“During the downturn in 2009 that followed the financial crisis, the Chinese government stepped in and invested heavily in telecommunications infrastructure, but we can’t really see any signs of that happening this time, and that´s a new situation. The management at the factories suddenly have to run operations that are no longer growing at the same pace. The smaller plants that are lacking export outlets have been hit particularly hard. This is because of a stagnating domestic market, due to the absence of any major new government projects. And this effects the factories negativley because operating at less than full capacity is a disaster for PCB production since the chemical processes deteriorate if they are not used up quickly.”
Choosing such a plant constitutes a major risk of the customer being landed with an inferior product, which can increase costs considerably if it leads to the failure of the final product. We feel confident in our choice of plants because a relatively large proportion of their production goes to exports. The choice of the right factory has always been important, but with the risks involved now, it has become more critical than ever. A sustainable end product requires reliable partners.
Have you got any tips for what to think about in the light of the situation in China?
- In an increasingly competitive situation, it is usually the smaller factories and those who don’t export any of their products who are likely to have serious difficulties to maintain full capacity. Production processes must be constantly running so as to avoid quality defects. The only parameter they will then be left to work with would be price – which in most cases leads to bankruptcy.
- Choosing a reliable and strong partner becomes even
more important in unsteady market conditions.
- Even if the Yuan were devalued, much of the factories’ purchases are in dollars. Moreover the cost, for example, of electricity, water and environmental charges will increase rapidly. Thus, devaluation may not impact to any great extent on the final price of PCBs.
- Those with a high volume of transactions in dollars, may
also find it beneficial to arrange their funding in dollars.
Read the whole interview with Anders in our newsletter, available in English, Chinese, Danish, Finnish, French, German, Polish, Russian, Spanish, Swedish.