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I. The economic situation of the sector in the first half of 2022
In the past half year, the sewing machinery sector has been faced with greater challenges as a wide range of adverse factors coincide with each other including Covid-19 pandemic, Russia-Ukraine conflicts, global inflation. Omicron variant has triggered another wave of cases, posing grave threat to short-term employment, consumption and demands. And the shrinkage of down-stream orders has led to freefalling of sewing machinery sales at home. The escalation of Russia-Ukraine war has precipitated the inflation around the world, and induced crises in energy, food and geopolitics. And the uncertainties of global environment and economic growth have deteriorated. The removal of lockdown and resumption of production and daily life in most foreign countries have brought rewards and released great demands for consumption. ASEAN countries have reopened their economy rapidly, and the sector has maintained a positive export impetus. Faced with challenges at home and abroad, China's sewing machinery sector abruptly runs out of steam since this April, its domestic sales decline sharply while foreign trade maintains its momentum. On the whole, the sector shows a downward trend, and we can draw the following conclusions from major economic indicators in the first half of this year:
1. the production declines at a medium rate and the stock pressure remains
Afflicted by heavy stockpiling and the resurgence of Covid-19 in Q2, the sector has received less orders over time, and laid bare its overcapacity and production shrinkage.
Statistics of 100 sewing machine manufacturers collected by China Swing Machinery Association (CSMA) has revealed that in the first five months the aggregate industrial output in this sector has decreased 8.88% on a YoY basis, the output of industrial sewing machine has fallen 16.79% compared with a year earlier, and the output of all the other products except special machine and template machine has suffered substantial loss. Those above-mentioned 100 manufacturers have stockpiled up to 1.38mn sets of sewing equipment, 79.38% higher compared with a year earlier. And such a high level of stock has created lots of pressures on de-stocking, and presented greater challenges for both production and selling. According to the research, orders keep dropping in June and manufacturers of sewing machines and spare parts complain that their production has vanished 40% to 50%. As estimated, the growth rate of production across the industry has been 25% lower or worse than a year earlier.
2. domestic sales impacted by Covid-19 pandemic has dropped sharply
In the first six months, down-stream sectors like apparel-making weren't able to run at their full capacity due to resurgence of Covid-19 cases and ensuing lockdowns. As a result, sales are hindered, demands shrink, orders are lost and costs rise, all of which make it harder for companies, shake their faith in growth and shatter their investment intentions. Consequentially, many small and medium-sized apparel companies have scaled down or suspend their production, and some are even closed down. According to the statistics, from January to May, the overall retailing of commodities and clothes sales by enterprises above the designated size have both declined on a YoY basis.
Battered by the pandemic, the sales of sewing machinery at home remain stagnant since the very beginning of this year, and demands have been sent into a tailspin in April and May. Most of the sewing machine manufacturers have suffered a 40%-50% decrease in their domestic sales, and some have even experienced a 60% loss. It's estimated that the sales of sewing equipment at home have fallen 40% on the whole compared with a year earlier, and have dropped to the lowest point in 2016.
3. demands in Europe and America recover, but the sector's export dips gradually
Over the past six months, though faced with disrupted shipment, Russia-Ukraine conflicts, record high inflation and the like, global economy recovers continuously and the world has mostly reopened. As demands for commodities like apparel and footwear keep growing in developed countries, the export of the same by countries in southeast Asia has bounced back stimulated by the resumption of orders. Thus, the export of sewing machinery by China has kept growing at a medium rate, which becomes a significant drive for industrial growth this year. According to the data released by China Customs, China has accumulatively exported sewing machinery worth of 1.71bn USD in the first six months, increasing 14.31% compared with a year earlier. But, the growth rate is still 18% lower than that of the same period last year. Generally, the growth slows down and may not be continued.
By products, the export of industrial sewing machine and embroidery machine sustains a medium-rate growth, that of pre- and post-sewing equipment and spare parts remains the same as a year earlier, while household sewing machine suffers a sharp decrease in export. To be specific, the export value of industrial sewing machine and embroidery machine has respectively grown 29.23% and 42.74%, that of pre- and post-sewing equipment and spare parts has fluctuated at a single-digit percentage, while that of household sewing machine has plummeted 38.27%. It proves that as the pandemic eases at abroad, the sector's export has returned to its normal.
Judging from export destinations, China's sewing machinery export to other Asian countries in the first six months has increased 27.61% compared with a year earlier, to South America 6.94% higher while export to Europe, Africa and North America has fallen 19.36%, 13.95% and 10.05% respectively. It can be inferred that as key players of textile and apparel, footwear and suitcase manufacturing and export Asia and South America have seen their economies rebound quickly and have shown noticeable vitality and potentials.
With regard to key export regions, ASEAN and BRI countries remain China's top choices to export sewing machinery. In detail, the export to BRI countries, ASEAN, South Asia, and Middle East has increased 24.25%, 33.59%, 38.68% and 39.59% separately. In the meanwhile, that to EU, East Asia, Central and East Europe, and Central Asia has fallen 13.06%, 9.51%, 4.33% and 23.87% respectively.
In terms of key export destinations, Vietnam, India and Bangladesh are still China's top three export destinations of sewing machinery. In the first six months, China's export of the same to Vietnam, India and Bangladesh has grown 14.97%, 51.72% and 63.74% separately, constituting 30% of China's overall export. In the meantime, China's export to Pakistan, Singapore, Indonesia, Cambodia, UAE, Malaysia and Myanmar has jumped greatly compared with a year earlier. However, that to America, Japan, Brazil and South Korea has sank noticeably. Compounded by Russia-Ukraine conflicts, China's export to these two countries and neighboring region has plunged.
II. Analysis of the sector's performance in the second half of 2022
It has become a consensus that in the second half of 2022 global economy will continue to slow down taking into account Covid-19 lingering around the world, the escalation of superpower geopolitical conflicts and global inflation, and greater uncertainties facing the industry. Generally speaking, the sector is faced with the following three challenges:
1. continuous slowdown of global economy
Afflicted by high inflation and Russia-Ukraine conflicts, global stagflation risks are larger, and possibilities of economic slowdown and descent are greater. And institutions like International Monetary Fund and World Bank have lowered their expectations for global economic growth. In particular, the existing crises in global supply chains, oil, food and geopolitics have been deteriorating; Federal Reserve has raised the interest rate and unusual tightening policies have played out expeditiously; it becomes more likely that Russia-Ukraine conflicts will linger. The worst effects of these crises might synchronize with each other at a certain point, possibly leading to economic recession and even causing global economy to fall to its bottom again.
2. consumption recovery lacks momentum
Regarding domestic situations, the Covid-19 pandemic has a widespread and lasting impact, leading to strict control measures, which has an egregious effect on economy, employment and consumption. The market demand is still weak though relevant economic indicators recover and become stabilized in June. Since micro- and small-sized enterprises mostly face difficulties, unemployment rate runs relatively high, residents' incomes fall and so do their ability to withstand the impact, consumption demand and people's faith remain depressed. Therefore, it will take a much longer time to restore the consumption. In terms of situations at abroad, as economic stimulus is revoked around the world, adversities like fuel and food crisis, high inflation, rising interest rate and tightening liquidity have imposed restrictions on global consumption. Since June, key economic indicators in advanced countries including PMI index in the manufacturing sector, consumer confidence index and their purchasing power have declined substantially, proving a stagnant demand and worse prospect. It's estimated that overseas demand and consumption will continue to shrink.
3. Covid-19 cases keep resurging
It becomes more difficult to prevent the highly infectious Omicron variant from spreading. The fact that Covid cases keep resurging in many places has damaged the society's faith in putting an end to the pandemic shortly, in which case, enterprises and consumers have taken a more cautious attitude when it comes to investment and consumption, hindering economic recovery and demand unleashing. What's worse, sub-variants BA.4 and BA.5 have spread rapidly across the world and triggered another wave of global pandemic. Sub-variant BA.5 has already penetrated cities like Xi'an, Beijing, Dalian and Shanghai, posing a greater threat to China's dynamic zero-Covid strategy. Pandemic situations around the globe are still complicated, and it's hard to tell whether the resurgence of Covid-19 will result in foreign countries tightening their control measures, or whether there will be another wave of global pandemic this fall. In short-term, we cannot conclude that the pandemic has come to an end, and it will continue to have an influence on global economic growth, division of sectors, market landscape and the like.
Considering these above challenges, we can infer that it will take quite a long time for domestic demand and consumer confidence to recover, influences of inflation, war, rising interest rate, tightening policies, and supply chain crisis will be widely felt across economic sectors and consumption scenarios in the second half of this year. China's sewing machinery sector has to bear the pressures of depressed domestic and foreign demands, and the downward pressure on the economy will become more obvious.
1. the economy is descending at a larger pace
In the second half, the production and sales in this sector will continue to develop downwards based on the high baseline and heavy stock in the first half. As national economy starts to gain its foothold in Q4 and sewing machine manufacturers begin to prepare stocks for next spring, the decline of production will hopefully come to a halt. This year, the production will experience a 30% drop or worse, and the revenues will be at least 20% lower.
2. the falling of domestic sales comes to an end, and demands for intelligent equipment rise
As the resurgence of Covid-19 in many places becomes a new norm, the recovery of domestic consumption and demand lacks sustained momentum, and the domestic sales of sewing machinery performs badly in Q3. Apparel-making enterprises begin to produce autumn and winter clothes. Meanwhile, national economy bounces back noticeably and consumer confidence has been restored. The domestic sales will hopefully gain its lost ground in the last quarter. This year, domestic sales will probably fall 40%.
Furthermore, the repeated impacts by the pandemic will strengthen downstream sectors' resolution to accelerate digital and intelligent transformation. It's expected that demands for high-quality intelligent and automated sewing equipment and overall solutions will pick up speed.
3. export keeps slowing down and maintains a lower growth rate
It's assumed that the temporary bonus produced by lockdown removal and economic growth at abroad will expire in Q3. The soaring of apparel orders received by factories in Southeast Asia will cool down in the last quarter as demands in Europe and America drop and China puts the pandemic under control, resulting in a weaker demand for sewing machinery. Thus, China's export of the same will generally slow down and its growth rate will gradually drop to a single-digit or maintain the same rate as a year earlier.
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