There were two things that had been growing non-stop in China since 1990: GDP and number of cars being registered. Both trends came to an end in 2018, with negative outlooks for the near future, all of which is causing concerns among brands and car makers. Beijing’s blackout is able to send markets into a panic: the cut of Apple’s outlook at the beginning of January, caused by the Chinese slow down, has caused chaos for the world’s stock exchanges.
The numbers
For (about) 30 years, between 1989 and 2018, China’s GDP grew with a yearly average of over 9%. The People’s Republic closed 2017 with a growth of 6.8%. This past December the monthly data gave +6.4%, for a yearly growth of 6.6%. It is true that we are speaking of numbers that would mean an economic boom for any European country. But not in China, because here they represent a slow-down that carries concerning consequences to the spending attitude of the middle class.
Cars
Again, in December 2018, car sales dropped by 19%. While throughout the year, according to the manufacturers’ association, car sales decreased to 23.7 million, or -4.1% in comparison to 2017. For any individual brand, this is a big hit, because they had all trusted in China to be one of the main destinations for their vehicles: international press tells the story of how Jaguar’s and Land Rover’s plants are working at half capacity, while Ford had a double-digits decrease in its turnover, and Volkswagen (just as Apple), had to cut its performance outlook.
Consumption
A reportage about the situation in Beijing that was created by The Guardian, reports how consumers, even when in front of special offers at luxury boutiques, remain untouched. Many elements are depressing the local public. The uncertainty about seasonal data, of course, but also the hits from the trade tensions with the United States, and the generally unstable climate. The season gained the title (given by the press), of: the “consumption downgrade”. Moreover, even with government policies that try to lift the people’s spirits up (for example by offering to try a 4-day work week), consumptive depression hits, with news of investment cuts due to their ineffectiveness and other initiatives to cut debt.
Resolution
The international business community looks at the situation developing with concern. The interdependencies are many, and they are so that, if China slows down, it is inevitable that everybody slows down. Meanwhile, the Chinese-American trade war is currently on ceasefire. Vice-president Liu He is flying to the White House to stay between January 30th and 31st, to meet with its counterpart. The hope is that the (commercial) hatchet can be buried.
