Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.
A growing number of companies are flashing a warning sign on China's economy
A growing number of companies are flashing a warning sign on China's economy
Gina HeebJan 9, 2019, 22:28 IST
People visit a Samsung Electronics display booth during an electronics expo in Beijing, Wednesday, Sept. 21, 2016.AP Photo/Mark Schiefelbein
Advertisement
Trade tensions have added to a policy-engineered slowdown in China.
Last week, Apple blamed slowing economic growth there as it cut its revenue forecast.
Several other large companies have issued similar warnings about the second-largest economy.
Apple rattled global markets last week as it cited cooling activity in China as a risk to revenue, underscoring expectations for the second-largest economy to lose steam. And it was far from alone in its warning.
Prominent companies around the world have been keeping watchful eyes on China's economy, which has been growing at its weakest pace in a decade.
After the start of a state-led deleveraging campaign in 2017, the slowdown had been widely expected. A spate of tariffs on hundreds of billions of dollars worth of American and Chinese products hasn't helped.
But as warning signs emerge left and right, some seem to have underestimated just how much steam the once-booming economy would lose.
Advertisement
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Apple CEO Tim Cook said in his January 2 statement.
The China Passenger Car Association said Wednesday auto sales in the country slumped for the first time in more than two decades in 2018, laying onto concerns as factory activity contracts and after Chinese stocks closed their worst year in a decade.
To be sure, not all corporations are struggling in China. Nike, for instance, saw double-digit percentage sales growth in the country during the fiscal second quarter. In the post-earnings call, CFO Andy Campion said ongoing trade tensions had not affected the retailer.
But in recent months, an increasing number of companies seem to be on the other side of things. Here are a few of them:
In a letter lowering the technology giant's revenue forecast last week, CEO Tim Cook blamed weak sales in China. Forecasting $84 billion in revenue for the first quarter, compared with analyst expectations of more than $91 billion, he said most of his the revenue decline occurred in greater China across products including iPhones, Macs, and iPads.
Samsung
Samsung Electronics on Wednesday estimated that its profit in the last three months of 2018 was down nearly a third from the previous year's. It cited "lackluster" demand for what would mark its first quarterly decline in two years. The company’s market share for smartphones in China has slumped to less than 1%.
"Depressed demand in China will further drive down Samsung's chip sales there," Song Myung-sup, a senior analyst at HI Investment & Securities, told Reuters. And China's overall smartphone market is stalled and declining, which will affect not only Apple but Samsung."
Starbucks
China is the second-largest market for Starbucks after the US, growing consistently. But that could become a problem when consumer demand fizzles. As a luxury brand in China, the coffee company is particularly vulnerable to economic conditions.
Bloomberg reported last month that Starbucks CFO Patrick Grismer said same-stores sales growth in China, a closely-watched indicator in the restaurant industry, could fall to as low as 1% in the long-run.
Tiffany & Co.
Slowing Chinese tourism and spending in the US and Hong Kong contributed to Tiffany’s lower sales in the third quarter, the company said in November.
While sales in mainland China held up, according to the release, CEO Alessandro Bogliolo said in an earnings call the company had "clearly seen" a shift in Chinese tourism and spending.
HP Inc.
HP CEO Dion Weisler underlined the importance of China as a market in November, CNBC reported, and said the company was monitoring business conditions there.
"We obviously continue to assess the situation and the potential impact on our business and our plans that we may or may not need to make as a result — but again, we're not chasing ghosts, but we're also not sticking our heads in the sand either," he said of the trade war.
Daimler
Daimler blamed rising protectionism as it cut its profit forecast twice last year, warning that tariffs would have a negative impact on sales. The German carmaker had already been expecting Mercedes-Benz sales in China to slow.
While China moved to lower its tariff on vehicles in December, trade tensions have added a layer of uncertainty on top of already waning automotive demand in the country.
