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26/05/2022

Long-Term COVID Restrictions In China Resulting In Slow Demand, Warns Global Firms




Long-Term COVID Restrictions In China Resulting In Slow Demand, Warns Global Firms
China's economy is stumbling back to its feet two months after draconian COVID-19 lockdowns crippled global supply lines, but industries from retailers to chipmakers are warning of poor sales as people in the country slam the brakes on spending.
 
As protracted COVID limits squeeze spending power and force more people out of work, car sales in the world's largest auto market have slowed substantially, gamers are buying fewer consoles, and people are loath to replace their existing cellphones, laptops, and televisions.
 
"The current China lockdowns ... has implications to both supply and demand," said Colette Kress, chief financial officer at U.S. chipmaker Nvidia (NVDA.O), which forecast on Thursday a $400 million hit to gaming sales from China's stringent coronavirus restrictions.
 
"You have very large cities that are in full lockdown, focusing really on other important things for the citizens there. So it's impacting our demand."
 
Beijing, with a population of 22 million people, has enacted stricter workplace attendance policies in line with China's zero-COVID policy. Shanghai, the country's commercial capital, and a slew of other megacities are encircled by partial lockdowns or other restrictions.
 
Retail sales fell 11.1 per cent year over year in April, following a 3.5 per cent drop in March. Earlier this week, UBS and J.P. Morgan cut their full-year GDP growth predictions for China to 3% and 3.7 per cent, respectively.
 
On Wednesday, Premier Li Keqiang stated that China would strive for reasonable economic growth in the second quarter while also addressing rising unemployment. To help the world's second-largest economy, the cabinet announced greater tax credit rebates and postponed social security payments and loan repayments.
 
JD.com Inc, Chinese e-commerce giant, said last week that the COVID-19 situation was unlike anything China had seen before, when outbreaks were limited to smaller areas and increased online buying.
 
"In April, the order cancellation rate was significantly higher than last year due to logistical disruptions. There was an improvement in May, but it was still higher than a year earlier," JD.com CEO Xu Lei said.
 
"Consumers are facing loss in income and confidence, and overall consumption is sluggish."
 
After years of rapid development, auto sales in China have slowed, and foreign automakers have been hit particularly hard.
 
Last month, Tesla's sales in China, where the company has struggled to restore manufacturing to pre-pandemic levels, were practically wiped out. The China Passenger Car Association said on Wednesday that while retail car sales for the first three weeks of May jumped 34% from the same time in April, they were 16 per cent lower than a year ago, and called for further government help.
 
Sales are being slowed by a loss in income connected to COVID-19, according to the industry association, even in unlocked areas of China.
 
After two years of pandemic-driven demand, Lenovo, the world's largest PC maker, announced its weakest quarterly revenue rise in seven quarters on Thursday.
According to market intelligence firm Canalys, China's PC shipments, which include desktop, laptop, and workstation shipments, declined 1% in the January-March period, snapping a seven-quarter record of increase.
 
Tencent, China's most valuable corporation, had its poorest quarter since going public in 2004, owing to lower advertising spending by consumers, e-commerce companies, and travel companies.
 
Apple supplier Foxconn has warned that smartphone demand in China is dwindling, and the country, which was once a haven for luxury goods companies like LVMH, has seen luxury sales plummet.
 
"Even when China comes out of isolation, the bounce back will not be as quick and as immediate as we have seen in Europe and the United States," Johann Rupert, Chairman of Swiss firm Richemont said last week.
 
(Source:www.usnews.com) 

Christopher J. Mitchell

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