China’s economic slowdown is starting to weigh on some of the world’s biggest businesses.
From Silicon Valley to Detroit, big international companies are feeling the effects from the downturn in the world’s second-largest economy.
Growth in China last year was the weakest it has been in nearly three decades and the outlook for 2019 could be worse, as the trade war with the United States continues to damage the economy.
A number of big companies have already said their sales are suffering as a result of China’s economic slowdown.
This week, US construction machinery maker Caterpillar (CAT) said its biggest earnings miss in a decade was partly due to lower demand in China. Hardware manufacturer Stanley Black & Decker (SWJ) has similarly highlighted weakening demand in China’s construction industry.
Earlier in January, Apple (AAPL) roiled global markets after it said it expected a weaker Chinese economy to hurt its sales numbers. CEO Tim Cook said in a letter to investors that the company had been blindsided by “the magnitude of the economic deceleration” there.
Who’s at risk?
Experts think there are likely more international businesses exposed to China’s faltering growth.
Sectors like luxury goods and automobiles, which count China as one of their biggest global market, could be hit particularly badly as Chinese consumers dial back purchases.
“After a strong run over the last two to three years, luxury brands are going to struggle,” said Ben Cavender, an analyst at research firm China Market Research.
Investors had been focused on earnings from Luis Vuitton owner LVMH (LVMHF) on Tuesday. Yet the French company reported record annual sales for 2018 and hiked its dividend.
The auto industry looks particularly vulnerable. For a number of top international carmakers, China brings in more revenue than the United States or Europe. But last year the Chinese car market shrank in terms of sales.
Electric carmaker Tesla (TSLA) could be the next to face pressure. Tu Le, Beijing-based founder of research firm Sino Auto Insights, said the fact the California-based company has been cutting prices in China was not a good sign.
“Tesla sales in China are being affected by the softness in the market,” he said. The company is also facing increasing competition in China from a number of local rivals.
Who’s doing OK?
Some of the world’s biggest consumer names so far appear to be withstanding the China downturn. Retail sales in China have so far held up well as the economy slows, with the country expected to become the world’s top consumer market next year.
Similarly, sportswear makers Adidas (ADDDF) and Nike (NKE) are not sweating over Or we position in China just yet. Adidas (ADDDF) CEO Kasper Rorsted said in November that the European firm was still seeing strong growth in this market, but could see a “slight slowdown” in the first quarter of 2019.
Nike’s CFO Andrew Campion said in December the company sees “very strong signs of momentum in China.”