Huge staff cuts at Chinese Apple supplier raise the question: can the country’s businesses withstand a drawn-out trade war?
- O-Film Group, a Chinese supplier of camera and touch panel parts for Apple, is reportedly cutting 8,000 staff at its central China’s plant
- Worries are growing over the resilience of China’s business sector as China shifts to a “patience tactic” in trade negotiations with the US, analysts say
O-Film Group, a major supplier of camera and touch-screen components for Apple, has reportedly laid off more than 8,000 staff at its plant in central China, adding to concerns about whether the country’s businesses can withstand a protracted trade war with the United States.
O-Film made the cuts at its factory in Nanchang, Jiangxi Province, according to a report on Wednesday by Caixin, a Chinese financial news outlet.
Weighed down by a gloomy market outlook for smartphones, increasingly fierce competition and the affects of trade tariffs, O-Film has seen its profits crash this year.
Its investor relations department said it was “not aware of related information” when asked about the lay-offs in a call from the Post on Thursday afternoon.
However, some financial institutions are already clearing their exposure to the company. A joint stock bank based in south China’s Guangzhou said it was in the process of exiting its investment in O-Film, which was mainly in the form of bonds.
The company reported a worse-than-expected 91 per cent fall in net profit to 21 million yuan (US$3 million) for the first half on Tuesday night, although revenue increased by 29.2 per cent to 23.6 billion yuan.
The interim result continues O-Film’s worrying margin growth, despite its top-line growth. Investment banks including Credit Suisse and Morgan Stanley cut their target prices for the company in May after it announced its annual results.
China can turn US trade war ‘crisis into an opportunity’, says top leadership
“I am afraid the difficulties facing O-Film is not a single case, the industry of electronics is facing great pressure due to the economy slowing down and external turbulence,” said Cao Zhongxiong, director of the New Economy Research Centre at the China Development Institute.
Chinese and US negotiators wrapped up two days of talks in Shanghai on Wednesday without reaching a breakthrough.
Some analysts said China has shifted to a more patient tactic in the trade negotiations, after previous talks broke down in May. But the major uncertainty now will centre around the resilience of the domestic business sector.
In recent months, state-owned think tanks and bureaucrats have been touring the country to assess whether the domestic economy can withstand a drawn-out dispute with the US.
Officials with the Ministry of Commerce visited the provinces of Jiangxi and Hunan in mid July, holding seminars with local enterprises, to study the impact of the trade disputes, its website shows.
“It is difficult to gauge accurately the impact brought by the trade war. But, it is possible to measure which industries will be affected more than others, as well as how the job market will be affected,” said
Iris Pang, an economist with ING Bank NV in Hong Kong.
“The technology sector, from semiconductors to software, will see the biggest headwinds, although I am optimistic about overall conditions,” she said.
A measure of China’s manufacturing activity shrank for a third straight month in July. The official manufacturing Purchasing Managers’ Index (PMI) came in at 49.7, where a number below 50 represents contraction.
Total domestic shipments of mobile phones tumbled by 5.1 per cent year on year to 186 units in the first six months, according to figures from the China Institute of Information and Communication Research.
Globally, shipments shed 3.8 per cent from a year earlier, according to data from third-party research agency Gartner.
