China’s economy continues to disappoint as the country tries to recover from crippling COVID-19 lockdowns, and leaders are taking note.
The world’s second-largest economy saw factory activity fall for the fifth straight month in August, new data from the National Bureau of Statistics showed on Thursday.
This comes after the country’s GDP grew by just about 1% qoq in the second quarter. On an annual basis, household consumption fell by 15% in the second quarter.
The spate of bad economic data sent the Hang Seng index down 8.5% in August, its worst performance since a 9.4% plunge in February.
While the People’s Bank of China (PBOC) has taken steps to cut interest rates to stabilize the economy, investors remain wary of investing.
“Investors are awaiting signs that Beijing will embark on significantly more forceful and effective stimulus measures as downward pressure on growth mounts,” Dennis DeBusschere, founder of 22V Research, wrote in a note to clients. “Recent signals are not very encouraging and point to a continuation of a conservative approach, although there is a risk that it will not be enough to deal with China’s current challenges.”
“There is little evidence that Xi is abandoning his view that China must remain patient in the current recovery, avoid policies that would worsen long-term debt risks, and focus on fostering new drivers of growth (like clean tech) rather than them “We will revive old growth drivers like real estate,” added DeBusschere.
The slowdown in China could pose a year-end earnings risk for US multinationals.
Here’s what several top CEOs told Yahoo Finance this month about the state of their businesses in China.
People holding umbrellas walk past a Lego store on a rainy day in Beijing July 13, 2023. (Photo by WANG ZHAO/AFP via Getty Images)
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Quick Fact: Cummins’ main supply chain operations in China are located in Beijing, Shanghai, Wuhan and Wuxi
“China has actually been pretty slow in recent years. So really at a lower level than for many years, due to the very strict COVID lockdown policy and the sluggish economy in China. This market.” For us, the situation is still pretty depressed. We forecast a slow recovery but really don’t see any dramatic signs of improvement in the market in China.”
The story goes on
“I would say that we have not seen the acceleration of the pandemic as fast as we expected [in China]. This is how China later emerged from the pandemic. And we expected store traffic and consumer spending to return to what we’ve seen in other countries. And I think we were a bit disappointed that it was a lot slower. So we are not quite where we thought we would be in China at this point. I don’t think it changes the fact that it’s a big market with a lot of kids and an opportunity for our brands. We keep our investments going. We build businesses in China. But we saw that [recovery] happen a little slower.
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Quick Fact: Cisco noted in its annual report that this is a significant risk to its business in China: “As we continue to expand globally, we may see new competition in different geographic regions. In particular, we have seen price-driven competition from competitors in Asia, particularly from China, and we expect this to continue.”
“We are very little dependent on China. It accounts for less than 2% of our business. So it’s not an essential part. But obviously it doesn’t seem to be coming back online as soon as everyone was expecting. And I think they’re going to keep implementing the policy, they lowered their interest rates, which was interesting. And I know that economic growth in China is one of the most important issues for the leadership there. So I expect they’ll continue to do whatever they want to do.”
Brian Sozzi is the Editor-in-Chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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