Western companies warn of hit from China’s sluggish rebound

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China’s gloomy business outlook threatens to have global repercussions as the world’s second-largest economy recovers weakly from strict Covid-era lockdowns, western companies have warned.

Corporate reports from a disparate array of companies around the world have documented their worries about China, which has for decades provided a booming market for everything from chemicals to cars, healthcare and travel.

“Demand in China is sluggish,” lamented Joel Smejkal, chief executive of US semiconductor manufacturer Vishay Intertechnology.

José Ferreira Neves, chief of UK ecommerce fashion group Farfetch, agreed: “The recovery is not as explosive as everyone thought it would be.”

“The major drive” behind Agilent’s revenue drop in the latest quarter was the Californian lab instrument maker’s business in China, said chief executive Mike McMullen, prompting the company to lower its annual growth targets.

China’s economy lost momentum in the second quarter of this year, data published last month showed, as falling exports, weak retail sales and a moribund property sector weighed on growth. 

Gross domestic product expanded by 0.8 per cent in the three months to June, down from 2.2 per cent in the first three months of this year. The difficulties facing the world’s second-largest economy are posing a drag on global growth.

In a bid to stimulate the economy Chinese authorities announced a package of financial market reforms earlier this month and have cut interest rates, but by less than expected. Spending has failed to pick up, exports are down and consumer prices fell last month.

Qi Wang, chief investment officer of MegaTrust Investment, which specialises in domestic Chinese stocks, said he could not remember a time when consumer, real estate and business confidence had been so low. “This isn’t just a simple, cyclical issue. It looks like something secular and structural.”

“Chinese people are not so happy and confident with their own government,” commented Martin Brudermüller, boss of chemicals group BASF, one of the largest foreign investors in China. “They spend a lot of money for the education of their kids. They have a 20 per cent unemployment rate of young people now. They have lost a lot of money in real estate. And they are simply cautious on spending money.”

He added: “The fundamentals for the next decades are not changing, but . . . [the recovery] is not kicking in, in the second half.”

Maike Schuh, chief financial officer of Evonik, another German chemicals group, described China’s recovery as “very slow”, noting construction was “still in crisis” and “unemployment, especially for younger people, seems to be a real issue”.

Markus Steilemann, chief executive of Covestro, a rival, reported a profit drop of nearly one-third on the year before, warning that a “quick recovery in China in the second half” was “not to be expected”.

Chinese tourists are going abroad less, travel company Booking Holdings said this month. “China is still not producing significantly,” said chief executive Glenn Fogel. “I don’t expect a recovery in China for us for some time, [a] significant time, probably.”

There are exceptions among consumer-facing companies including Apple, where chief executive Tim Cook talked of an “acceleration” in China as it turned a 3 per cent sales decline in its second quarter to 8 per cent growth in the third.

Starbucks, which counts China as its second-largest market, said the weak recovery had “no noticeable impact” on its sales, while Walmart reported a 22 per cent increase in its sales in the country last quarter and Ralph Lauren said its sales there had grown by more than half compared with last year, when Shanghai was locked down.

“Looking ahead, we still expect China to remain one of our fastest-growing markets,” said Patrice Louvet, chief executive of Ralph Lauren.

Netherlands-based insurance group Aegon said it had higher outflows in its asset management joint venture in China, citing what the chief executive called a “quite wobbly economy”. But its life insurance sales in the country — through a separate business partnership — rose by 80 per cent after lockdowns were lifted.

German industrial conglomerate Siemens said there had been a sharp drop in new orders in China, particular in its factory automation business. But chief executive Roland Busch said that “in the long term, we can say that China is certainly one of the major markets, and there will be profit generated”.

Mining group Rio Tinto remained “cautiously optimistic” about the Chinese economy, Jakob Stausholm, its chief executive, said. “They have demonstrated again and again, if there is a setback, they’re able to stimulate the economy and manage the economy in an effective manner.”

But others admitted they simply did not know: “It’s very difficult to call the timing and the magnitude of these turnarounds,” said Nicholas Anderson, chief of UK engineering group Spirax-Sarco. “In the case of China, my crystal ball is very hazy — [there is] a lot of fog around.”

Additional reporting by George Steer, Ian Smith and Euan Healy in London