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Business

Machinery, materials makers cut jobs amid slowdown

Companies tied to the construction industry in China are cutting jobs as business stalls.

TOKYO -- Japanese machinery and materials companies are broadly scaling back operations in China, trimming staff and production as the slowing economy there causes past excess to weigh on earnings.

     Construction equipment maker Komatsu said it has cut around 10% of its staff in China, or around 500 workers, since the beginning of fiscal 2015, soliciting volunteers for early retirement and declining to extend contracts for temporary workers. The same number was cut in fiscal 2013 and fiscal 2014 combined.

     Slowing construction demand put a large dent in Komatsu's machinery and rail car business in China. Sales from those operations dove 44% year on year in the April-September half.

     Kobe Steel subsidiary Kobelco Construction Machinery moved early this year to ax around 200 of the roughly 1,500 jobs at its factories in the cities of Hangzhou, Zhejiang Province, and Chengdu, Sichuan Province. The reduction will be completed by the end of the year.

     Materials makers are also downsizing. Taiheiyo Cement aims to shed around 100 employees -- nearly 10% of the workforce -- at its three Chinese factories through early retirement by 2016.

Past mistakes

The industries' current troubles have their roots in the 4 trillion yuan ($584 billion at the time) in economic stimulus China rolled out after the 2008 global economic crash. The measures caused capital investment to soar in construction and other industries.

     Beijing is now calling on regional governments to step up infrastructure investment to combat the current economic slowdown. But those governments are hurting for funds and so are hesitant to respond. Materials and machine makers, meanwhile, have started competing for orders with lower prices, leading to a cycle of poor earnings and increasingly desperate cuts.

     Other sectors are similarly suffering from overproduction. Container maker Toyo Seikan Group Holdings plans to dissolve its Chinese subsidiary that manufactures aluminum cans. Earnings have recently tumbled as increased production by Chinese competitors has spurred intense price competition.

     A slowing market for smartphones and other factors have also squeezed capital investment, crimping earnings at machine tool makers. Tsugami on Thursday downgraded its earnings outlook for the year ending in March 2016. Net profit is now seen plummeting 66% to 1.8 billion yen ($14.5 million). Chinese sales are seen at half of last fiscal year's level.

     THK, the world's leading producer of linear motion systems for machine tools, now sees net profit for this fiscal year tumbling 41% to 13.3 billion yen, down from the initial projection of 23.1 billion yen.

Booming buying

Yet even as manufacturers move to steady free-falling earnings with staff cuts, Japan's retailers are ready to grow, taking on more workers and opening more stores. Fast Retailing plans to continue opening around 100 Uniqlo stores per year in China. The country "is set to become one of our major operating bases," Chairman and President Tadashi Yanai said.

      Ryohin Keikaku, operator of the Muji chain of clothing and housewares stores, plans to grow its network of Chinese locations to 200 by February 2017 -- a 50% jump from the current level.

      Retail sales of consumer goods in China grew a healthy 11% year on year for October. Though rising wages are weighing on companies' balance sheets, growing incomes will likely lift merchandise sales.

(Nikkei)

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