Slowdown in China ripples through corporate earnings

Global companies are feeling the impact of a slowdown in the Chinese economy.

Why it matters: China is not only the largest consumer market in the world, but it also remains a key component of global supply chains.

  • But the Fed has warned that the country’s current troubles — housing market upheaval, regulation and continued COVID-related lockdowns — would spread.

Driving the news: Chinese leaders held their quarterly economic meeting on Thursday and “all but acknowledged” that their annual GDP growth target would not be met, the WSJ reports.

  • Meanwhile, several multinational brands and conglomerates reporting earnings from the second quarter have all cited weakness from the Chinese market as a challenge they’ve either been hindered by or have to overcome.

Details: Apple, which derives close to 20% from the “greater China region” (which includes Taiwan and Hong Kong) reported a 1% decline in revenue from the area from the same period last year, which was better than feared.

  • Earlier in the week, Adidas cut its financial forecast for the year because it had previously assumed there wouldn’t be any more “major” COVID-related lockdowns in China.

The big picture: Goldman Sachs issued a new earnings growth forecast this week for large and mid-cap companies in China of 0%, down from 4%.

  • Chinese Communist Party members omitted a GDP growth target on Thursday. Economists polled by Reuters say full-year growth could reach 4%, down from the country’s previously stated target of 5.5%.

What to watch: Jean-Jacques Guiony, CFO of Luxury holding company LVMH, noted on an analyst call Tuesday that while supply chain conditions have normalized, “the situation [in China] is quite uncertain.”

  • L’oreal today was similarly cautious with its outlook, citing double-digit revenue growth from the market last month after most of the COVID-related restrictions lifted.

Our thought bubble: Because Chinese leaders did not signal any change to their zero COVID policy today, multinationals will likely continue to hit bumps until vaccination rates in the country improve.