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Apple's problems sound alarm bells about China's future

Apple has a China problem. CEO Tim Cook took to the airwaves on Wednesday to announce an earnings miss for t...

Posted: Jan 4, 2019 12:17 PM
Updated: Jan 4, 2019 12:17 PM

Apple has a China problem. CEO Tim Cook took to the airwaves on Wednesday to announce an earnings miss for the fourth quarter of 2018, which he attributed to a decline in sales in the China market. The slump reflects a broader slowdown of the Chinese economy as the consequences of the ongoing trade dispute between China and the United States begin to manifest.

For careful observers, this should not come as a surprise. China's fourth quarter 2018 purchasing manager's index data was at 49.4, a clear signal that China's economy is slowing — anything below 50 signals a slowing economy and dampened prospects for future growth.

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China's economic vulnerability is based on its very unbalanced growth model. In other advanced economies such as the United States, spending by consumers contributes as much as two-thirds or more of overall GDP. In China, consumption has risen from 35% 10 years ago, but it is still not near 60% of GDP, indicating an unbalanced economy that places emphasis on exports and investment, both of which, in the long run, are not sustainable.

China's success as an export powerhouse is well understood, as many of the things that American consumers own bear the "made in China" label. Its emphasis on investment-driven growth has come by way of investment in infrastructure, construction, property development, high-speed rail and transit facilities. Investment in infrastructure and heavy construction turbo-boosted China's economy in 2008 and for the next five years, but it issued a tremendous amount of debt to support such growth. Currently, the debt-to-GDP ratio for China stands at an alarming 250% of GDP, an unsustainable number and one that presents formidable challenge to China's economic policymakers.

As the US-China trade war escalated and the US placed tariffs on over $200 billion dollars of Chinese exports, demand has decreased since these goods are now more expensive in the US market. There are widespread reports that factories are laying off workers and enforcing hiring freezes across China's industrial landscape. In the manufacturing hub of Guangdong Province, factories have been dismissing workers, telling them to go home early for the Chinese New Year without pay as factory orders from American companies dry up.

As the impact of the US-China trade war begins to filter through the Chinese economy, the Chinese consumer is taking action to prepare for an uncertain future. Consumers are the first to realize the change in fortunes within China's economy, and are spending less over fear of job loss and depressed wages consumer sentiment.

What's more, within China, Apple is facing lower-priced competition by the likes of Samsung, Huawei, Xiomi and ZTE. Phones offered by Apple's Chinese competitors are both packed with features and sell at a fraction of what an iPhone sells for in China.

The ongoing US-China trade war will also impact the broader global economy. The German, South Korean and Japanese economy provide important inputs and supplies to the Chinese manufacturing economy. When Foxconn assembles an iPhone in China, many of the parts that go into the iPhone are imported from South Korea, Japan and Germany. Thus, a slowdown in China will infect other parts of the global economy.

In the months ahead, be prepared to witness continued deterioration of the Chinese economy. This will be reflected in declining asset values such as real estate and equity markets, distressed corporate balance sheets and corporate assets, increased capital flight as a result of a declining Yuan relative to the US dollar, and growing stress within China's financial sector as non-performing loans accelerate within the banking sector. Given this backdrop, 2019 is going to be a challenging year for the Chinese economy and China's policymakers as they juggle numerous challenges across multiple dimensions.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 248189

Reported Deaths: 5411
CountyCasesDeaths
DeSoto16841171
Hinds15890312
Harrison13037191
Rankin10439205
Jackson10128177
Lee8721135
Madison8071160
Jones6166108
Forrest5870117
Lauderdale5724177
Lowndes5238109
Lafayette486192
Lamar475363
Washington4734122
Bolivar3941106
Oktibbeha388179
Panola360475
Pontotoc358752
Monroe3487103
Warren337895
Union337457
Marshall336065
Neshoba3325150
Pearl River319492
Leflore2980104
Lincoln293385
Sunflower277569
Tate266659
Alcorn260651
Itawamba258858
Pike258176
Hancock253557
Prentiss242450
Scott241043
Yazoo237754
Copiah237449
Tippah236246
Simpson232367
Leake227864
Coahoma223154
Grenada215770
Covington208871
Marion206171
Adams201666
Winston198061
George197438
Wayne196130
Attala191658
Newton186542
Chickasaw181243
Tishomingo179659
Holmes167867
Jasper165134
Clay156732
Stone140218
Tallahatchie138234
Clarke136460
Calhoun133321
Smith118823
Yalobusha113834
Walthall111136
Noxubee109622
Greene108929
Montgomery108134
Carroll103721
Lawrence101217
Perry99131
Amite96425
Webster90624
Claiborne85125
Tunica84521
Jefferson Davis83825
Humphreys81524
Benton80323
Kemper75720
Quitman6758
Franklin65315
Choctaw59613
Wilkinson58125
Jefferson53019
Sharkey42417
Issaquena1586
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Alabama Coronavirus Cases

Cases: 417528

Reported Deaths: 6030
CountyCasesDeaths
Jefferson61313888
Mobile29768542
Madison26637185
Tuscaloosa20580268
Montgomery18696304
Shelby18310113
Baldwin16002179
Lee12261101
Morgan12093112
Etowah11604157
Calhoun10982200
Marshall10108107
Houston8474129
Cullman7960104
Limestone790174
Elmore7723101
DeKalb764697
St. Clair7460120
Lauderdale745183
Talladega6102108
Walker5852174
Jackson574441
Blount526483
Colbert525670
Autauga510355
Coffee434256
Dale391081
Franklin363445
Chilton333565
Covington326167
Russell323810
Escambia312442
Dallas300296
Clarke278233
Chambers277869
Tallapoosa2599107
Pike245829
Marion240549
Lawrence240447
Winston223835
Bibb213047
Geneva197431
Marengo197329
Pickens195231
Hale173742
Barbour171236
Butler167958
Fayette166026
Cherokee159630
Henry151119
Monroe144417
Randolph138535
Washington136526
Clay125246
Crenshaw118044
Lamar116619
Cleburne116023
Macon113335
Lowndes108735
Wilcox101221
Bullock98128
Perry95419
Conecuh92920
Sumter88726
Greene75323
Coosa60414
Choctaw51224
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