Slower China economy crimps sales for more California businesses
Apple Inc. isn’t the only California company with a China problem.
From Barbie dolls to bottles of Merlot, the slowdown in China’s massive economy and the U.S.-China trade dispute are impeding sales growth for some other California companies doing business in China, serving Chinese tourists or pulling in Chinese investment. That’s sending disquieting ripples through California’s economy, which has grown more reliant on those cross-Pacific ties.
Apple was the latest to cite China’s decelerating economy, a pullback in Chinese consumer spending, shifting product preferences and the trade fight when the Cupertino company last week issued a rare cut to its sales forecast.
Although some analysts partly blamed Apple and its lofty iPhone prices for the electronics giant’s lowered projections, other companies and industries also said in recent weeks that their business in China has been hurt by the slower growth in the Chinese economy and the heightening of U.S. and Chinese tariffs on goods imported into their countries.
The dollar value of California wine exports to China, for instance, was down nearly 15 percent, to about $50 million, through the first 10 months of 2018, after showing gains earlier in the year, according to the Wine Institute trade group in San Francisco.
One culprit was the additional 10 percent tariff that China levied in September, which lifted the overall tariff on California wines to 25 percent. It was one in a series of retaliatory tariff increases between the United States and China on thousands of traded goods.
A range of California companies have cited China problems over the last two months:
-Ynon Kreiz, chief executive of Barbie maker Mattel Inc., told analysts in late October, “We are seeing a slowdown in our China business.” The El Segundo toymaker expected the slowdown “to persist for the remainder of 2018.”
-Avery Dennison Corp. reported disappointing third-quarter sales in its industrial and healthcare materials division, which makes fasteners and other products for the automotive industry, largely because of “greater-than-expected declines” in China. “We would expect a softer China automotive market in the fourth quarter as well,” Gregory Lovins, chief financial officer of the Glendale company, told analysts last fall.
-Electric-car maker Tesla Inc. has suffered sales declines in China amid the tariff battle, and the Palo Alto company responded by reducing prices of its Model S and Model X vehicles by 12 percent to 26 percent to help offset the duties.
The Chinese “are concerned about the future and so they have cut back their spending,” said Craig Allen, president of the U.S.-China Business Council, which represents 213 U.S. companies doing business with China. A 25 percent plunge in the Chinese stock market last year and the strong U.S. dollar relative to the Chinese yuan also are weighing on consumer spending, Allen said.
China’s retail sales were up 8.1 percent in November, but that was the smallest increase in 15 years. The overall economy, which was growing at a remarkable 8 percent or more annually a few years ago, now has slowed to about 6.5 percent.
China’s rapid economic development and expansion of its middle class in recent years turned it into a key player in California’s economy. California exports to China jumped 46 percent from 2008 to 2017, compared with a 16 percent gain in the state’s exports to the rest of the world, the council said. China now ranks third among export markets for California goods, behind Mexico and Canada, with a total export value of $15.6 billion in 2017.