What happens when the Chinese growth juggernaut slows? Or worse yet, grinds to a halt?
For most of the past two decades, China – with 400 million middle-class consumers growing richer by the day – was a one-way bet for the world’s corporations and a driver of the global economy.
By early 2018, General Motors was selling a third more cars in China than in the United States. Starbucks unveiled plans to open a coffee shop in China every 15 hours on average. Adidas enjoyed 26 percent growth in China, while Western Europe, its home market, was flat or shrinking.
But what happens when the Chinese growth juggernaut slows? Or worse yet, grinds to a halt?
It’s a question Apple brought to the fore this week by slashing its sales forecast amid what it called an “economic deterioration” in China, and it’s one other Western companies are likely to face soon, economists say.
“There are a heck of a lot of US companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year,” Kevin Hassett, chairman of the White House Council of Economic Advisers, said in an interview with CNN Thursday.
For many American companies, the prospect of weaker sales in China adds new complexity to a relationship already mired in problems. Washington’s trade war with Beijing has forced many American firms to consider moving their manufacturing out of China to avoid new tariffs when they import those goods to the United States.
That trade war grew out of mounting frustration in the United States that China was stealing American technology, blocking Western firms from its market and generally refusing to play fair in global trade. A sales slowdown on top of those tensions could further dampen Western enthusiasm for China as a trading partner, economists say.
“China has certainly become a slightly more hostile and complicated operating environment for American businesses,” said Eswar Prasad, an economics professor at Cornell University.
Fears of a slowdown in China’s economy pushed global markets lower Thursday, with the Dow Jones industrial average dropping 660 points, or 2.8 percent, to close at 22,686. The Standard & Poor’s 500-stock index slumped 2.5 percent, and the Nasdaq composite fell 3 percent.
Apple shares sank 10 percent Thursday after the company lowered its quarterly sales estimates for the first time in more than 15 years. Chief executive Tim Cook blamed the unforeseen “magnitude of the economic deterioration” in China, the world’s largest smartphone market.
