China’s economy hit by COVID-19 shutdowns

Yahoo Finance Live anchors discuss China’s economy amid ongoing COVID-19 shutdowns.

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- As we continue to evaluate the international picture and where that plays a role in this, too, China seeing more fallout from its strict COVID lockdowns. New economic data from the country shows steep year-over-year declines in retail sales, industrial production, and manufacturing. Our viewers are taking a look at some of those declines on the screen right now.

I want to point out retail sales down 11.1%. You're also seeing passenger car production down 41%, auto sales down 31.6% as well. And the unemployment rate in some of the largest cities, that actually climbed to 6.7% during the month of April.

- Well, it's not surprising when a city is entirely shut down that you're gonna see this kind of crimping of demand. The question is-- and I think there's this assumption that it's temporary because it has to be temporary, right? But I believe that the Shanghai lockdown is now, what, 50 days long, something like that?

So it's temporary, but the longer it goes on, how much fundamental demand destruction is there as opposed to how much gets pushed back? At a certain point, though, is there just stuff, purchases that people will flat-out decide not to make? And I think that's one of the big questions here.

- Yeah, no, not a surprise to see this data in my view. You go back to that Starbucks earnings-- Starbucks earnings report from a couple of weeks ago. China's sales plunged 23%. It was the worst part of their quarter.

But moving forward off of these numbers, you have to wonder, how is Nike doing in China? How is the sustainability of Tesla's results in China? How are they doing? How is Apple doing? Apple shares touched that bear market last week, perhaps for a reason, because of this weakness in China.

- Well, what we've already seen for some of those companies that have already talked about how important their growth trajectory is in China, for some companies, they've already decided to break apart those businesses. Could we see even more of that in the future as well if you do continue to see persistent headwinds like this in a region that is important to be in, but at the same time, it's going to be too much of an unstable kind of variable for your broader financial statements?

And so we've seen Yum! do this. We've seen-- you know, I think, going forward, if we do see a Starbucks, if we do see a-- McDonald's, even, as well, has done this in specific regions, looking in those regions to try and figure out where they need to break up that business to be a standalone, traded separately, of what is their US or Latin America or North America and then even EMEA-- European and Middle East and Africa-- approaching regions as well, and those businesses, to kind of separate the impact, if you will.

- There are two other things I think that we need to watch here. One is what will the political implications be. We're talking about a lot of the corporate implications.

There is some dissatisfaction with how President Xi has handled all of this in terms of the really strict and draconian lockdowns. Now, is his leadership in some kind of threat? I think most people who watch China--

- I think he's got this on lock.

- --would agree it is not, no. But are there sort of trickle-down, you know, dissatisfaction within the party that could cause some other repercussions that we are not yet seeing? I think it's something to watch. It's not happening today, but it's something to watch.

- I like that word, trickle-down, because if there's any positive from the China data, perhaps it starts to cool inflation a little bit. We're gonna get earnings later this week from Walmart, a major importer of goods from China. If the slowdown continues in China, perhaps we get some-- a little bit of a alleviation or relief in inflation or pressure.

- But if it makes the supply chain issues worse--

- That's the other part of it.

- --then that doesn't--

- I'm looking for a little positive today.

- Here's one more, one little positive. JP Morgan is actually upgrading Chinese internet stocks. At least 15 companies are being upgraded.

And JP Morgan caused a big stir when they came out downgrading these stocks a couple of months ago because they used the word "uninvestable" in their note, which apparently was a mistake. It wasn't something that was supposed to go out in the published note. And that word made it out there. And it caused a lot of consternation within China and within folks who invest in China.

Now, the folks who made this call wrote in their note, "Significant uncertainties facing the sector should begin to abate on the back of recent regulatory announcements." So you've got a lot of these stocks that are being upgraded. So we'll be watching to see how they perform on the back of that.