Reuters/Stringer
- China's slowing economy is chipping away at some American companies' revenues.
- DuPont, Danaher, and Procter & Gamble reported second-quarter revenue and volume drops in China.
- Its economy struggles with youth unemployment, falling retail sales, and lower industrial production.
China's economy has been worsening, and some American businesses are feeling the pain.
Economic data released Tuesday showed the world's second-largest economy performed below analyst expectations in terms of industrial production, retail sales, and exports. China's July economic report didn't mention youth-unemployment statistics after it soared to 21.3% in the second quarter, citing economic and social changes.
While Chinese manufacturing and construction are struggling to recover, some American companies with strong ties to China are also feeling the effects. Some leading chemical and manufacturing companies have reported weaker second-quarter sales, with some cutting their outlook for the second half of the year, saying conditions may worsen. And with falling consumer prices, some companies fear China may slip further into deflation, even as the country's central bank has implemented interest-rate cuts to incentivize lending.
For many Americans, this may mean more-expensive cars and personal-care products. If companies with a large presence in China lose enough revenue and China continues slowing, that could drag the US economy down as well and lead to layoffs.
Many American CEOs hoped that China's reopening in December would be a major turnaround in revenues for the region, though many have been left underwhelmed. Citigroup, whose net income fell 36% last quarter overall from the prior year, said in an earnings call that China's decelerated growth was the "biggest disappointment."
Thermo Fisher Scientific, an American biotechnology company, cut its end-of-year forecasts because of slowing economic activity in China.
"We think it's appropriate to assume that this condition remains in place for the remainder of the year," Stephen Williamson, the company's chief financial officer, said in an earnings call.
Its rival Danaher also cut its annual sales-growth forecast, saying that growth in China — which makes up about 13% of total revenue — fell 10% during the quarter. CEO Rainer Blair said on an earnings call that China orders were down 40% in the second quarter and down 50% in June because of excess capacity and declining foreign investment.
Major chemical companies have also been hit. Dow's second-quarter net income dropped 70% overall because of weaker sales volume. On an earnings call, its chief financial officer, Howard Ungerleider, said: "In China, while we are experiencing growth, the anticipated economic rebound following the end of zero-COVID restrictions has yet to fully materialize."
Dow's rival DuPont also reported a drop in China sales from existing operations, a 14% year-over-year fall. CEO Edward Breen said on an earnings call that growth might pick up soon, though the company cut its growth outlook for the second half of the year.
The Ohio manufacturing company Procter & Gamble reported a 1% drop in volumes last quarter driven mainly by weaker demand in the Greater China region. Additionally, Intel and 3M, both of which expect strong overall results for the rest of the year, both continued to see a slow recovery in China amid weaker demand.
Some automotive companies with a large American presence lowered their outlook as China's car sales fell for the second month in July, down 2.6% from last year. Toyota and Nissan reported some challenges in China in the second quarter.
To be sure, some American companies have performed well in China over the past few months. Apple reported record revenue last quarter for the Greater China region, while Starbucks China's revenue grew 51% year over year. Marriott also saw sales boom as domestic travel continued to accelerate.
Despite efforts by China to build new infrastructure and spur property investments, The Wall Street Journal reported, some economists are skeptical the initiatives can reverse the trend in China's economy. Beijing may issue about $140 billion in special Treasury bonds to assist struggling local governments, the Journal reported.
The International Monetary Fund previously forecast China would account for about 35% of global growth in 2023, though that may not be the case anymore. For many US companies, the decision to keep investing in China in hopes of a recovery or to focus more on other markets may be more important than ever.