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This Is Why American Businesses Continue To Seek Opportunities In China

CNN – Business/Consumer By Julia Horowitz, CNN Business American businesses find it tough to operate in China.

Yet, the most recent data on the country’s economy demonstrates why it’s still worthwhile for many businesses.

What’s going on: China’s economic output increased 7.9% in the April-June quarter compared to the same quarter a year ago, according to the National Bureau of Statistics.

This was a much slower pace of growth than China’s 18.3% year-over-year gain in the first quarter.

Comparisons to the depths of the country’s Covid-19 lockdowns in 2020 boosted that period, but no one expected growth of that level to be maintained.

In a note to clients, Julian Evans-Pritchard, senior China economist at Capital Economics, wrote, “All told, activity in China remained high in [the second quarter].”

There are some symptoms of vulnerability.

According to figures released Thursday, retail sales growth fell to 12.1% in June, down from 12.4% in May.

This is the year’s slowest growth rate.

Yue Su, lead economist at The Economist Intelligence Unit, said, “[The] data continues to imply unequal recovery.”

But, achieving 7.9% growth as the economy gains traction is notable, and China is on course to easily exceed its annual growth objective of more than 6%.

The figures serve as a reminder of why US and other international corporations are adamant about continuing to do business in China, despite unpredictability in legislation, market access concerns, and intellectual property protection challenges.

Levi Strauss reported on its results call earlier this month that revenue in China for the second quarter was already 3% higher than the same period last year.

“We remain focused on continuing this momentum as one of our major growth prospects,” CEO Chip Bergh told analysts.

On a call with analysts this week, PepsiCo CEO Ramon Laguarta commended the company’s China business, citing the solid economic rebound following the Covid disaster.

Conflicts between Washington and Beijing, as well as concerns about human rights, have recently made doing business in China even more difficult for Western companies.

Companies including H&M, Nike, Adidas, and Burberry faced boycotts earlier this year as a result of previous statements they made against the alleged use of forced labor to produce cotton in China’s western region of Xinjiang.

With the size of its consumer base and its sustained rate of growth, China is simply too huge an opportunity for many to pass up.

Airlines are now again profitable. American airlines just reported yet another round of quarterly losses.

It’s possible that this will be their final performance.

My CNN Business colleague Chris Isidore reports that Delta Air Lines revealed Wednesday that it was profitable in June and intends to be profitable for the rest of the year.

United aims to break even this month and is going on with development plans, including the largest jet order in the company’s history.

Delta CEO Ed Bastian told analysts this week that “the trend is continuing as we ended June with an accelerating demand environment.”

That isn’t to say the industry’s problems aren’t still present.

Despite a strong June, Delta stated that revenue for the quarter was nearly half of what it was in the same period last year.

While recreational travel is up from pre-pandemic levels, higher-paying business travelers are still hard to come by.

Domestic business travel in June was around 40% lower than it was two years ago, according to Delta.

Overseas travel is also still a bit of a snoozer.

Officials believe that after Labor Day, these types of excursions will take again, although the rate of recovery is still unknown.

Despite the optimism, airline stocks are still underperforming.

Delta stock is up 1% this year, vs 16.5% for the S&P 500.

United’s stock is up 11% this year.

Analysts, on the other hand, are optimistic.

More over half of the 140 ratings for the eight top US airline stocks are “buy” or “strong buy” recommendations.

Only 18 analysts are advising investors to sell.

As the use of cash drops and China steps up tests of its own e-yuan, the European Central Bank is forging on with efforts to develop a digital version of the euro by the middle of the decade.

On Wednesday, the central bank announced the start of a two-year inquiry into “important problems related design and distribution” of a digital euro, as well as the possible market impact.

Later, a final decision on whether or not to implement a digital euro would be made.

Details, details: A digital euro would not replace cash, but it would perform similarly.

Europeans might utilize an electronic form of money issued by the European Central Bank or national central banks to a digital wallet instead of paying for products or services using banknotes.

The announcement puts Europe on track to introduce a digital currency as early as 2026.

It’s a lofty goal, but the ECB is plainly concerned about the ramifications of delaying action for too long.

Francois Villeroy de Galhau, the governor of France’s central bank, said in a speech last month that central bank money may be phased out when the use of currency diminishes and new digital coins and tokens arise.

After Facebook announced ambitions to launch a digital currency in 2019, Europe began to take the idea of a digital euro more seriously.

Villeroy also highlighted China’s efforts in developing a digital yuan, which is already available in several Chinese cities.

“There is a clear risk that Europe will lose momentum not only in its efforts to strengthen the euro’s international role, but also in its efforts to preserve it,” he warned.

“The difficulty here is also a geopolitical concern,” says BNY Mellon, Morgan Stanley, Truist, and the United States government.

Before the US markets open, Bank and UnitedHealth report their earnings.

After the close, Alcoa and American Outdoor Brands are next.

Also today, at 8:30 a.m., the first round of US unemployment claims for the previous week will be released.

Data on industrial production for June will be released at 9:15 a.m.

In addition, at 9:30 a.m., Federal Reserve Chief Jerome Powell appears before the Senate Banking Committee.

The most recent data on retail sales in the United States will be released tomorrow.

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