China’s economy continues to disappoint as it tries to recover from debilitating COVID-19 lockdowns, and the C-suite is taking notice.
The world’s second-largest economy saw factory activity fall for the fifth straight month in August, according to new data from the National Bureau of Statistics issued on Thursday.
This came on the heels of the country’s GDP only growing about 1% sequentially in the second quarter. Household consumption on an annualized basis tanked 15% in the second quarter.
The barrage of bad economic reads sent the Hang Seng Index to an 8.5% decline in August, the worst performance since a 9.4% plunge in February.
While the People’s Bank of China (PBOC) has moved to cut interest rates to stabilize the economy, investors remain wary of putting money to work.
“Investors are waiting for signs that Beijing, facing mounting downside pressures on growth, will adopt significantly more forceful and effective stimulus policies,” 22V Research founder Dennis DeBusschere wrote in a client note. “The latest signals are not very encouraging, suggesting continuation of a conservative approach despite the risks that it is insufficient to address China’s current challenges.”
“There is little to suggest that Xi is abandoning his view that China must remain patient in the current recovery, avoid adopting measures that would worsen long-term debt risks, and focus on cultivating new growth drivers (such as clean tech) rather than propping up old growth drivers such as property,” DeBusschere added.
The sluggishness in China could present earnings risk to US multinationals headed into year-end.
Here’s what several top CEOs have told Yahoo Finance this month on the state of their businesses in China.
Fast fact: Cummins’ main supply chain operations in China are situated in Beijing, Shanghai, Wuhan, and Wuxi
“China has actually been quite slow for the last couple of years. So really at a level lower than we’ve seen in many years as a result of the very stringent COVID lockdown policy and the sluggish economy that we see in China. That market for us continues to be quite depressed. We’re projecting some slow recovery, but really not seeing any dramatic signs of improvement in the market in China.”
“I’d say we haven’t seen the acceleration out of the pandemic as fast as we had anticipated [in China]. So China came out of the pandemic later. And we had assumed that they would return to traffic in stores and consumer spending the way we’ve seen it in other countries. And I think we’ve been a bit disappointed that has happened quite a bit slower. So we’re not exactly where we thought we would be at this point in China. I don’t think it changes the fact that it is a big market with a lot of kids and an opportunity for our brands. We’re keeping our investments going. We’re building stores in China. But we have seen that [recovery] happen a bit slower.”
Fast fact: In its annual report, Cisco noted this as a key 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 experienced price-focused competition from competitors in Asia, especially from China, and we anticipate this will continue.”
“We are very lightly exposed to China. It’s less than 2% of our business. So it’s not a significant part. But clearly, it seems to not be coming back online as fast as everyone expected them to. And I think that they’ll continue to work the policy, they lowered their interest rates, which was interesting. And I know that the economic growth in China is one of the most important topics for the leadership there. So I expect they’ll continue to make whatever moves they need to make.”
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email email@example.com.