The economic slowdown in China has been one of the biggest stories of the past few months as declining domestic demands hurt companies which export to the country and also damaged those who chose to manufacture in Asia’s largest economy. China has not had a slowdown in three decades, and hence it has come as such a bolt from the blue for many. Companies have been devising various strategies to combat it, and in a fresh development that would further worry investors, South Korean car manufacturer Hyundai is apparently planning to stop production at one of its plants in China. China has been the biggest market for Hyundai for years; however, due to declining domestic demand, the company has suffered massive declines in sales.
The economic slowdown has had a crippling effect on the car industry in China, which had grown at breakneck speed over the past decade. As of 2016, Hyundai was the third biggest car producer in the country but poor sales have led to overcapacity, and the company has now decided to temporarily halt production at the Beijing plant. Hyundai operates as many as three plants in Beijing, and the plant that is being considered for suspension of production is known as Beijing 1.
Although it is not yet clear when the suspension is going to kick in, reports in the Korean financial press state that it could commence in April. In addition to that, it is also important to keep in mind that the company’s total production is currently way above the demand for cars in China. In 2018, the total sales in China were 50% of the total production capacity of the company, and in such a situation it is not really a surprise that the company has chosen to take this step.
As of 2019, Hyundai operates 5 car manufacturing plants in China and employs thousands of people. However, the news about the suspension of production at one of its plants in China has been welcomed by the markets and analysts. An analyst at Samsung Securities stated that although Hyundai insists it is not a closure, which might not be the case. The analysts stated, “My view is that Hyundai is taking steps to close the plant. It has been dragging its feet over a shutdown, and it is positive that they are finally taking action.” The stock also soared by 3.6% today after the news broke.