{"id":7458,"date":"2023-10-31T07:06:50","date_gmt":"2023-10-31T07:06:50","guid":{"rendered":"https:\/\/infundpros.com\/investment\/how-chinas-economic-woes-could-carry-a-high-cost-for-western-businesses\/"},"modified":"2023-10-31T07:06:51","modified_gmt":"2023-10-31T07:06:51","slug":"how-chinas-economic-woes-could-carry-a-high-cost-for-western-businesses","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=7458","title":{"rendered":"How China\u2019s economic woes could carry a high cost for Western businesses"},"content":{"rendered":"
\n

China, the world\u2019s second-largest economy, has a few problems. The lingering hangover of pandemic controls, an ailing real-estate market and a strenuous tug-of-war with one of its biggest trading partners \u2014 the U.S. \u2014 may put a dent in its recovery.<\/p>\n

\u201cYou could say that the U.S. has been the tortoise in the lead and China has been the hare,\u201d David Garfield, managing partner and global head of industries at AlixPartners, said about China\u2019s ambition to overtake the U.S. as the No. 1 economy. \u201cThe hare is racing and catching up, but now it is wounded in some way.\u201d<\/p>\n

\n

China\u2019s economic output is on track to grow 5% this year, but will see its GDP decline next year, growing by 3.5%, the International Monetary Fund (IMF) estimates.<\/p>\n

The country\u2019s economy is showing signs of fatigue as the Shanghai Stock Exchange (SSE) is down over 10% from its May trading levels, while the Hong Kong\u2019s Hang Seng Index (HSI) has officially entered bear-market territory, down 20% from its January highs. Still, China remains the global powerhouse in manufacturing with 27% of its GDP coming from large-scale electronics and industrial production. But U.S. companies are eagerly looking to set up shop elsewhere, as China\u2019s once-welcoming air dissipates and operating on its land carries more risks.\u00a0<\/p>\n

\u201cU.S. and Western companies may face tough regulations,\u201d said Emily Murphy, deputy director and senior fellow at the Center for Strategic and International Studies. \u201cRandom security checks or even bans are a form of retaliation for some of our own policies.\u201d<\/p>\n

Earlier this year, Beijing cracked down on U.S. chip giant Micron Technology
\n MU,
\n +0.64%<\/bg-quote>,<\/span>
\n which derived 10% of its profits from China. The decision, which China attributed to safety risks, came on the heels of Washington\u2019s move to restrict the export of advanced technologies to China in 2022.\u00a0<\/p>\n

\u201cThose U.S. companies are in the best positions here who have started to diversify away,\u201d Garfield said. \u201cApple has been particularly smart.\u201d<\/p>\n

In 2022, nearly 80% of Apple\u2019s suppliers had a presence in China and in 2023 about 95% of its iPhones were still manufactured there through its biggest contractor, Foxconn, which is currently undergoing a tax audit and a land use investigation by Chinese officials. Apple
\n AAPL,
\n +1.23%<\/bg-quote>
\n built an \u201ciPhone city\u201d in Zhengzhou where it employs more than 300,000 people, and until the fall of 2023, it was the top smartphone seller in the nation.<\/p>\n

\u201cWhen China\u2019s economy slows, it impacts producers and prices in the commodity markets worldwide,\u201d said Garfield. \u201cWhen capital investment slows down in China, then companies that sell equipment and components into China see their sales struggle. Then you have the slowing consumer demand that can cause additional headaches.\u201d\u00a0<\/p>\n

The French luxury giant LVMH Mo\u00ebt Hennessy has seen an overall global growth of 11% between 2022 and 2023 for its fashion and leather goods group, which is a modest expansion compared with its growth of over 30% between 2021 and 2022. The company\u2019s slump in profits can be attributed to slowing China sales, as big spenders have stopped splurging on luxury goods, UBS noted.\u00a0\u00a0<\/p>\n

\u201cDemand is also hitting the electric-vehicle market,\u201d Garfield said. \u201cChina is one of the biggest markets for EVs, so the ripple effects are significant.\u201d<\/p>\n

Between 2016 and 2022, China spent $57 billion to subsidize EV purchases, according to AlixPartners. Last year alone, more than 25% of cars sold in China were electric, compared with 13% globally. Tesla
\n TSLA,
\n -4.79%<\/bg-quote>,<\/span>
\n the American EV giant, has one of its largest factories in Shanghai and now offers its Model S and Model X with a nearly 7% discount as competition heats up from the likes of Nio, China\u2019s own EV maker. Nio, once dubbed the \u201cTesla Killer,\u201d is facing financing difficulties and recently issued convertible bonds valued at $1 billion to stay afloat. Its share price has lost 87% of its value, down from its 2021 January levels of $65 per share to $8.9 a share as of Oct. 24, 2023.<\/p>\n

\u201cDespite the difficulties, the automotive industry continues to do well, then there are other bright spots,\u201d said Garfield. \u201cChina is particularly strong, when it comes to the battery-manufacturing segment.\u201d\u00a0<\/p>\n

China has a monopoly on making batteries, Gavekal Research noted. China refines 60% of the world\u2019s lithium \u2014 an essential element for EV batteries \u2014 and by 2030, 75% of battery-production facilities in the pipeline will be located there.<\/p>\n

\u201cRegardless of all the internal troubles, manufacturing remains the strongest aspect of China\u2019s economy,\u201d Murphy said. \u201cYou will have to keep working with China unless you want to pay ten times more for commodities, electronics or just about anything. They simply have the infrastructure.\u201d<\/p>\n

Watch the video to find out more.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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