Chinese Economy Tanking!

[Mangele]

China’s tanking economy is costing major US companies and could throw cold water on America’s economic boom

Story by [email protected] (Noah Sheidlower) •23h

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A factory of the Zhejiang Headway Communication Equipment Co. in Huzhou, China. Reuters/Stringer© Reuters/Stringer

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.

1 of 19 Photos in Gallery©Getty/AXEL HEIMKEN

Airbus’ A321XLR aircraft is set to fly in 2024. Take a look at the new plane and see what new routes it opens — coming soon to carriers like American and United.

• Airbus said its highly-anticipated A321XLR is still on track to enter commercial service in 2024.
• The XLR will fly 800 miles farther than its A321LR predecessor — and carry more people.
• The plane has been purchased by more than 25 airlines and is expected to open new narrowbody routes.

Airlines worldwide are placing multi-million dollar bets on Airbus’ newest narrowbody aircraft — and the planemaker is on track to deliver despite some regulatory hiccups.

Airbus said recently in its second-quarter earnings call that its upcoming A321XLR (extra-long-range) variant is still expected to enter the market in Q2 2024.

The far-flying plane is unique because it can journey up to 5,400 miles nonstop thanks to an additional fuel tank added onboard.

It hasn’t been a perfectly easily road, however. European regulators have voiced concerns over fire-safety risks relating to the extra fuel tank — a roadblock that Airbus has since resolved, Reuters reported.

Though it may not be the best outcome. Sources told Reuters that the tank redesign could slash a few hundred miles of range, potentially affecting the route options available to operators.

Nevertheless, Airbus is still hoping for a late 2023 certification as the company rushes to fill a market gap. Here’s a closer look at the single-aisle A321XLR:

See More

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.

[Simiyu22]

@Mangele

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.

Where is @Sambamba

[Mangele]

Fasten your seatbelts – the global economy is heading for turbulence

Story by Gerard Lyons •2h

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Xi Jingping China Economy© Provided by The Telegraph

What is happening to the world economy? An analogy frequently used to describe the global economy is that of a plane and whether it will enjoy a soft landing or suffer a hard one.

Perhaps it may be better to say fasten your seatbelts and brace yourself for turbulence, as the pilots often give the impression of not being sure how to fly, or of what direction they are heading in.

Worries about growth have come to the fore. This is evident in the recent behaviour of markets where bond yields have risen and equity markets have suffered.

It was also seen in the minutes released by the US Federal Reserve last week. They showed a number of policymakers fearful of overtightening monetary policy. Such concerns are even greater here.

At the start of the year, a recession in Western economies was widely expected. This has not materialised. Most, including the UK, have proved resilient. Although lower inflation will boost spending power, the key determining factor for growth will be where interest rates and bond yields settle.

The danger is that businesses find it harder and more expensive to raise funds, because of a credit crunch, tough lending conditions and a more risk-averse environment in capital markets. Elements of this are already evident.

A good barometer of consensus thinking is the economic forecasts from the International Monetary Fund. In late July, they forecast that global growth would slow from 3.5pc last year to 3pc this year and next. This is incredibly weak.

Not only that, but with two thirds of global growth this year expected to come from Asia this explains why there is so much nervousness about recent poor economic news from China.

With some prices falling, there is now concern about deflation in China. But low inflation is more likely. Moreover, it is more appropriate to think about a deflationary environment if both prices and output are falling, and China is not in that situation.

In recent years there has been a significant shift to a dual-circulation economic policy in China. Following the trade war with the US under President Trump, China sought to move towards self-sufficiency in areas such as food, fuel and technology. The latest trade sanctions initiated by the US and followed by others do not help.

Such a structural change would have been challenging at the best of times but it has coincided with a more prudent policy environment, both to curb inflation, which China has done successfully, and to constrain the debt overhang, which is proving more of a handful.

Add in the future shrinking population and the net result is that China’s future growth rate will be slower and more erratic than in the past. It is not a time to panic, but to recognise such a structural shift. Moreover, elsewhere across Asia there is evidence of private sector activity holding up well and an economic rebound is underway in Japan, the world’s third-largest economy.

I am positive about the longer-term outlook for global growth. But near-term concerns about growth need to be taken seriously, particularly when the full impact of the normalisation of monetary policy in Western economies has yet to feed through.

Up until two years ago, Western economies had witnessed a dozen years of cheap money. This consisted of policy rates being kept too low for too long and of central banks printing money as if it was going out of fashion. The balance sheets of central banks soared. Not only was money cheap, it was widely available. Global liquidity was plentiful.

Cheap money led to asset price inflation, allowed markets to not price properly for risk, led to a misallocation of capital including the survival of zombie firms and it also helped feed the recent surge in inflation.

Those countries that adopted a prudent approach to monetary policy are in a far better position to act now. These were largely in the so-called emerging economies. For instance, in recent weeks, Chile and Brazil have been able to cut interest rates. They had sensibly tightened policy before the recent surge in inflation and so are now able to ease policy to head off economic weakness.

China, too, cut interest rates last week, and while that action was in response to a slowing economy, its ability to ease was because of its previous prudence.

Currently there is a valid concern about policy rates in the US, UK and euro area rising too far. Even when rates peak, central banks will still be tightening policy by shrinking their balance sheets through quantitative tightening. This doesn’t augur well for growth.

While I wouldn’t tighten further, there is also the need to avoid a return to cheap money. So in future policy rates may have to settle at a high level.

How markets will cope with this is unclear. It has already prompted the question of what constitutes a risk-free asset? Government bonds were seen as this. During the pandemic, a third of government bonds globally traded with negative yields, meaning that investors saw these as truly safe. Effectively, governments were being rewarded for borrowing.

Now, over the last three years because of inflation, rising policy rates and tighter global liquidity, government bonds have witnessed negative total returns. If you had bought this safe-haven, you would have lost money.

Since the 2008 global financial crisis there has been a shift in financial markets, with the rise of shadow banking. The latest report from the Financial Stability Board on the scale of this shows that at the end of 2021, total financial assets had risen to $485 trillion. Yes, trillion. And the amount provided by non-bank financial institutions had reached almost half of this, $239 trillion.

Collateral, often in the form of government bonds and other quality debt, plays an important part in underpinning this system. If this is now being questioned as a safe asset it suggests not only greater financial instability but also greater risk aversion, meaning that global liquidity conditions will naturally tighten further. Stabilising policy rates and yields may thus become vitally important.

So the focus is shifting from inflation to growth. Next, I expect the focus of financial markets to shift to debt. Public and private debt levels globally are high, limiting the room for policy manoeuvre and leaving many people and firms exposed to a sustained period of high interest rates. Keep the seatbelts tightened.

Gerard Lyons is the chief economic strategist at Netwealth. Liam Halligan is on holiday.

[Dronemiles]

interesting information! thanks!

[Kulibah]

@Mangele

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.

Deflation is biting them