On Apple’s earnings call Tuesday, Cook said improved trade dialogue between the U.S. and China as well as stimulus measures from Beijing were improving consumer confidence in the country “in a positive way.” The comments add to a growing list of CEOs, policymakers and investors expressing more optimism on the outlook for the Chinese economy.
“We certainly feel a lot better than we did 90 days ago,” Cook said.
In January, China reported its official economic growth rate was 6.6% for 2018, the slowest pace since 1990. In response to weakening growth, the Chinese government initiated a series of fiscal and monetary stimulus measures, including a cut to the value-added tax rate for key sectors such as manufacturing, transportation and construction. In addition, China’s central bank cut the ratio of cash banks must hold as reserves.
Business leaders and policymakers say the measures are paying off. Goldman Sachs CEO David Solomon said Monday “there’s no question China has responded better to stimulus.” The International Monetary Fund (IMF) raised its growth forecast for China last month to 6.3% for the year, citing fiscal and monetary stimulus and increased prospects of a trade deal.
“China has done a fantastic job of stabilizing its economy through fiscal policy. We have steadfastly remained to be constructive on China,” BlackRock CEO Larry Fink told CNBC’s Hadley Gamble last week.
At the start of 2019, American companies ranging from Ford to Tiffany’s warned billions of dollars in tariffs on goods exchanged between the U.S. and China were casting a shadow on sales outlook. First-quarter earnings reports now reveal that some companies are already seeing a brighter path ahead.
Take Apple, which lowered its revenue guidance in January citing weak demand from Chinese consumers and trade tensions. On Tuesday the company reported $10.22 billion in sales in the Greater China region in its March quarter, down 22% from one year ago but an improvement from the prior quarter.
“While we acknowledge that a 22% decline in China revenue is far from a resurgence, Tim Cook did highlight that iPhone declines in the last few weeks of March were significantly smaller than they were to start the quarter,” analysts at Jefferies wrote in a note Wednesday.
Other consumer brands have also reported strength from China in the second quarter. Starbucks reported stronger-than-expected sales growth in its China stores, while Yum China reported strong sales growth in its KFC division in the country.
Not everyone is as bullish. General Motors reported a slowdown in vehicle sales in the first-quarter, with CEO Mary Barra saying she sees “more downside risk than upside risk in the near term” in China. 3M blamed headwinds in China for its weak earnings.
Ric Deverell, chief economist and global head of macro strategy at Macquarie Group, said economic indicators show it’s “very clear” the low point for growth in China was in December.
“I think the recovery is still happening it’s just happening gradually,” Deverell told CNBC’s Capital Connection.
The iShares China Large-Cap ETF (FXI) was trading at $44.52 per share on Wednesday afternoon, up $0.03 (+0.07%). Year-to-date, FXI has declined -3.57%, versus a 10.50% rise in the benchmark S&P 500 index during the same period.
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