Market Analysis

The Business World’s View of China

An unfiltered look at US and European corporate executives' comments on China's economy in recent conference calls.

Commentary from Western firms doing business in China might help you see through the media fog. Photo by ChinaFotoPress / Getty Images.

China's economy continues to be the focus of media consternation, with many presuming economic data from behind the Great Wall can't be relied upon. Some go so far as to speculate China isn't actually growing at all presently; it's contracting. A month ago, we looked at comments from firms actually doing business in China to give a qualitative assessment of conditions on the ground to compare to reported figures and media fears. Here we offer the same, albeit with a broader array of companies from both the US and Europe. To us, this qualitative evidence suggests that while you can question the specific numbers, growth trends aren't wildly diverging from what we've seen lately-slower growth, with industrials firms and mining equipment companies seeing the biggest pinch. Consumer-oriented businesses' comments seem more robust, all of which dovetails with China's officially announced shift from infrastructure and heavy industry-led growth to services and consumption.

Like last month, these quotations were all derived from FactSet's CallStreet tool and compile the most directly China-related remarks made by executives during earnings conference calls in the last month. They are unedited by us, except for highlighting and occasional bolding, so you can see what we believe are particular points of emphasis. It is possible we unintentionally missed some firms' remarks. And we aren't arguing this is hugely scientific. Our aim, again, is to give you a largely unfiltered snapshot of the business world's take on China. Enjoy.

As a brief additional note: Fisher Investments' MarketMinder does NOT recommend individual securities; the below is simply an example of a broader theme we wish to highlight. We are not suggesting you buy, sell, hold or take any other action with these securities. The opinions and comments of the executives and analysts cited here are their own and may not reflect those of Fisher Investments or MarketMinder. Like we said, they are unfiltered.

Nike - September 24, 2015 (US Apparel Firm)

Trevor A. Edwards
President-Brand, Nike

Finally, in greater China, revenue was up an amazing 30%, tremendous growth that again proves more than ever the success of our strategies. These gains were driven by strong performance across nearly all key categories, including sportswear, running, and basketball. For our wholesale partners like Belle, the doors that have been re-profiled continue to outperform the rest of the fleet, driving expanded productivity and profitability.


All told, the incredible growth we saw in China this quarter reflects our ongoing efforts to align the marketplace to the category offense, a strategy that we expect will drive growth in this critical geography for many years to come.

Hennes & Mauritz AB (Swedish Apparel Firm) - September 24, 2015

Chris Chaviaras
Analyst, Barclays Capital Securities Ltd.

Okay. Very helpful. Then on China, on a more negative note there, if we try to decompose some sort of like-for-like, these have been negative but understandably, you do grow stores quite rapidly there. Given that you do operate online, does it come maybe to a surprise that the existing store base is not as productive maybe or this is in line with your budget in the past about China?

Nils Vinge
Head-Investor Relations, Hennes & Mauritz AB

We continue to expand very rapidly in China. We're very happy with the development and also the profitability and we launched e-commerce as late as last year, last autumn. And then of course, from quarter to quarter, there will always be volatility. So, no concern really for the numbers in China.

I would say, on the contrary, there is a huge potential. We will continue to expand very rapidly this autumn, this quarter. So, we are really are optimistic for the future going on in China.

Smiths Group (British Industrial Conglomerate) - September 23, 2015

Jeffery A. McCaulley
President & Chief Executive Officer, Smiths Medical Division

Despite challenging conditions, sales in the developing markets rose 8%. Our China business reversed its 2014 decline of 7%, achieving positive growth of 14% in the year due in large part to our focus on additional product registrations, new product launches and improved alignment in incentives in our sales organization. India grew 23% as our move to a hybrid sales model continues to deliver strong results there.


Clearly, the China market is slowing. Most medical device companies now are talking growth more in the 8% to 10% range. So we'll see where China ultimately goes in the long run. But we feel better about what we're doing in China today. There's still more work to do for us to be as large as we think we can be in China.

Carnival Cruise Lines (US/UK Cruise Line/Hotels/Resorts) - September 22, 2015

Steven M. Wieczynski
Analyst, Stifel, Nicolaus & Co., Inc.

And just to follow up on that, and the Asian component of that EAA, you guys are still pretty encouraged about what you're seeing so far for 2016?

Arnold W. Donald
President, Chief Executive Officer & Director, Carnival Corp.

Absolutely. Asia - again, that'll be a good case in point, China yields may come down a bit but they're going to be return accretive because of the significant increase in capacity. Now at the same time, with that capacity increase, it's still only going to represent 5% of our total capacity. And by having the capacity there, it actually reduces our capacity growth in the rest of the world. And so we'll only have - even though we enter [unintelligible] 3.7% capacity growth for next year, only 2% of it is outside of the Asian market. And so, 2% capacity growth in the rest of the world is reasonably conservative growth for us in the current environment, which is also good.

General Mills (US, Food Products)- September 22, 2015

Kendall J. Powell
Chairman & Chief Executive Officer, General Mills, Inc.

Challenging economic conditions are having an impact on our categories and our businesses in emerging markets. First quarter net sales increased 3% on a constant currency basis for the Asia-Pacific region, but it was a mixed bag across our portfolio. In China, constant currency net sales were down 1%, driven by a decline on Wanchai Ferry dumplings. We have more promotions and advertising planned on Wanchai Ferry to spur growth in the second half of the year.

Häagen-Dazs ice cream posted low-single-digit net sales growth in China, led by good performance on our retail products. And I'm pleased to report that our Yoplait yogurt launch in Shanghai is off to a good start. We've already achieved a 5% value share of the yogurt category in that city. We saw particularly strong performance on our Perle de lait premium varieties. We're learning more about the Chinese yogurt consumer, their tastes and packaging preferences, and we're taking a consumer-first approach to give them what they want.

David Cristopher Driscoll
Analyst, Citigroup Global Markets, Inc. (Broker)

Ken, maybe just one follow-on on the International side. Did China worsen here? Has the run rate continued to get worse, given the last couple of quarters here and the comments on Wanchai Ferry?

Kendall J. Powell
Chairman & Chief Executive Officer, General Mills, Inc.

We can follow up with you. My recollection is that it's been - it was pretty stable. It was better in Q4. And it was - I mean, we were down 1% here in Q1, but, I mean, it's basically been stable. And so I would say it didn't worsen. Of course, we need to see it improve.

Industria de Diseno Textil SA (Spanish Apparel Firm) - September 16, 2015

Simon W. Irwin
Analyst, Credit Suisse Securities (Europe) Ltd.

Good morning, gentlemen. Can you just talk a little bit more about store growth? Obviously, first half net store growth was relatively low; if you could just give us your expectation for the full year, maybe what the gross number as well as the net number was? And related to that, there were press reports in Spain about the slowdown of store growth in China. And I was wondering if you could respond to that?

Pablo Isla Álvarez de Tejera
Chairman & Chief Executive Officer, Industria de Diseño Textil SA


Our business in China remains quite strong, very positive like-for-like sales growth in the country. And we continue seeing strong growth opportunities with all our different brands in the Chinese markets. So answering your question, it has more to do with the calendar of openings than with anything else.

Joy Global (US Mining Equipment Firm) - September 3, 2015

James M. Sullivan
Executive Vice President and CFO, Joy Global

The majority of the decrease in original equipment was related to shovel orders in Latin America copper and China iron ore in the prior year which were not repeated this year. Original equipment orders in the current quarter included a conveyor system into the U.S. coal market.

Medtronic (US Medical Devices Firm)- September 3, 2015

Omar S. Ishrak
Chairman & Chief Executive Officer, Medtronic Plc

While the Middle East and Africa region was weaker this quarter owing to the delayed distributor sales, we did see notable improvements in China, India and Russia. Mainland China grew in the low double digits above our estimated growth of the China medical device market. Our China results benefited from initial implementation of our channel optimization strategy in the region, which is focused on transitioning our distribution channel to include consolidated platform distributors.

Robert Adam Hopkins
Analyst, Bank of America Merrill Lynch

Thanks, and good morning. So want to start out first with Omar. I was wondering if you could just elaborate a little bit on your comments on emerging markets since it's so topical. And so I guess my question is, just specifically, what was the growth in emerging markets for Medtronic? And was Middle East and Africa the only area where you saw a slowdown? And then I was just wondering if you could comment generally on your confidence in the near and intermediate term that emerging market growth can continue.

Omar S. Ishrak
Chairman & Chief Executive Officer, Medtronic Plc

Well, first, I'm very confident. In fact, the Middle East and Africa was really the only region which was significantly impacted because of the reasons that I stated, because of the distributor sales. I mean, the underlying operational performance was fine, and we expect that to bounce back this very quarter. I think Latin America was a little softer than we'd like, but the other regions were much stronger than they've been historically. And then in particular, I know that's in everyone's mind here, we were actually quite pleased with what we saw in China. We had low double-digit growth in China, which actually is better than what we've been seeing in most quarters last year. We feel that we've outperformed the overall market, although the med device market was reasonably strong. We did outperform it, but the underlying market was quite robust.

We feel at this stage with what we know and what we can - intelligence that we can get from our own people and the market itself, we feel pretty good that we can continue this and, in fact, accelerate it in the back half because we'll get some tailwind out of the Middle East, and China seems to be okay, at least from what we can see. Latin America maybe a little more pressured, but China seems strong, India is definitely coming back.

Elekta AB (Swedish Medical Device Firm) - September 1, 2015

Tomas Puusepp
President, Chief Executive Officer & Director, Elekta AB

In Asia, the situation is mixed. During the quarter, growth was strong, especially in Australia, India, and also China. I will get back to China in a minute. Japan is somewhat more challenging, and we expect an unchanged market this year. The smaller distributor market in the Far East have generally been hard hit by weak economic development, including significant currency movements. Overall, the global market is currently growing at approximately 3% to 5%.


Now turning to Asia Pacific, the first quarter in China was good, and when we analyzed opportunities that exist in the market and assess what we expect to achieve for the full year in China, it looks continue to be positive. Our business cycle are on [sic] and we see no short-term effects of devaluation in the country. Our performance in India was also relatively healthy during the quarter. And in Australia, we secured another major order, while the trend in Far East was weak, mainly due to the low macroeconomic growth. And overall, order bookings for Asia Pacific increased 12% in local currencies.

Bureau Veritas (French Environmental Testing Firm) - September 1, 2015

Didier Michaud-Daniel
Chief Executive Officer, Bureau Veritas SA

Let's talk now about our continuous expansion in China, page nine. Since the beginning of the year, BV achieved four acquisitions strategically positioned in the Chinese market for Industrial Construction, Industry and Consumer Products. This brings €65 million in annualized revenues, adding more than 1,500 people to the local work force.

At the end of June 2015, China represented 14.7% of the total group revenues versus 12.4% in H1 2014. We have more than 12,000 employees in China now. Despite a lower growth rate of the Chinese GDP, the country remains one of the most dynamic in the world and generates important needs in infrastructure, transport and energy production.

Tom R. Sykes
Analyst, Deutsche Bank AG (Broker UK)

Yeah. Good afternoon, everybody. Just a couple. One, firstly, just on your businesses in China, there's obviously a lot of debate at the moment about Chinese GDP growth. I wondered if you could give some more visibility on what's happening to your organic growth in China and perhaps the wider Asia region and how that's progressed from Q1 to Q2 and what the outlook is, please.

Didier Michaud-Daniel
Chief Executive Officer, Bureau Veritas SA

Okay. Sure, Tom. So, let's start by China first. So, in China, we did very well in the first semester. And I strongly believe that because of the three drivers which are still there. I mean, development of the middle class, we know that there will be 250 million people more in the middle class in 2020. Because of favorable regulatory environment, and we can see after what happened in Tianjin this catastrophe, and we are very sorry about it, of course, that the environment, that the oil regulatory environment is going to be strengthening, for sure. And also because of the fact that the domestic market is open to companies like ours, we should clearly benefit from these structural growth drivers in the future.

So, it's the reason why I strongly believe that we need to continue to expand our business in China. On top of it, China is still a 1.2 billion inhabitants country. And even if the GDP is not 7% anymore, even if it's close to 4% to 5%, it's still one of the highest GDP growth in the world. They are super important...

Tiffany and Co. (US Luxury Products Firm) - August 27, 2015

Mark L. Aaron
Vice President-Investor Relations, Tiffany & Co.

Moving to the Asia-Pacific region, sales on a constant exchange rate basis rose 9% in total, led by fashion gold jewelry and statement jewelry sales, while comp store sales increased 6% on top of a 7% increase in last year's second quarter. As we saw in the first quarter, performance in the region was once again mixed and led by double-digit sales growth in China and Australia as well as varying degrees of growth in most other markets. However, our stores in Hong Kong and Macau continued to experience weakness that began in the second half of last year, as we believe a number of Chinese tourists have shifted their traveling and shopping to other markets, at least for the moment.

PVH Corp. (US Apparel Firm) - August 27, 2015

Emanuel Chirico
Chairman & Chief Executive Officer, PVH Corp.

By region, we are seeing very strong performance for Europe and China for both brands. In Korea and Brazil, where we have a large Calvin Klein business, sales trends continue to be challenging as we are being negatively impacted by the macroeconomic environment for each of those countries.

Bob S. Drbul
Analyst, Nomura Securities International, Inc.

Hi, Manny. Maybe a couple of questions for you. The first one, I guess, China is top of mind; I was wondering if you can elaborate a little bit more in terms of what you are seeing in China? And I guess with some of the macro trends present, does that speed up or change the potential for the license buyback opportunities that's there?

Emanuel Chirico
Chairman & Chief Executive Officer, PVH Corp.

I guess, let me start with part one of that question, which was the business in China. Our business in China both for Calvin, that we operate directly, our comps have been running between mid-single digit to high single digit for the first six months of the year, and that trend is more or less continued into - through August so far.

The challenge is - trying to operate that business is, trying to get beyond a lot of the noise that's going on from the stock market point of view and where we see the business moving and going. So you can't help, but look at that business and be a little bit more conservative about how we project that business out both through the balance of this year and then moving into 2016 and beyond. So it just gives us pause.

Joan Payson
Analyst, Barclays Capital, Inc.

Manny, could you talk a little bit - I think you've mentioned China; but more broadly for 2016, are there any other potential headwinds that you would foresee and how do those compare to this year?

Emanuel Chirico
Chairman & Chief Executive Officer, PVH Corp.


The China market continues to be a growth market for us. We continue to expand there. We continue to add square footage. We continue to expand our brand offering throughout China, both Calvin and Tommy as those businesses develop. The challenge there is, it's more of a what's going to happen question and how much growth is there. Clearly, this is not the heydays of three years ago where, from 2007 to 2010, the business grew 15% topline. We are planning the business to grow more mid-single-digits. I think that's reasonable. We are currently outperforming that, but there's just a lot of noise in the environment.

Autodesk (US Technology Services Firm) - August 27, 2015

Maggie Nolan, Analyst, William Blair Securities

Okay. Makes sense. And then my second question was you mentioned that China wasn't much of a headwind in the second quarter. I'm hoping you can give a little more color around your view on that going forward? And what kind of limited that headwind in the second quarter?

Carl Bass
President, Chief Executive Officer & Director, Autodesk, Inc.

I wish I could. That is one of the confounding things amongst many. Yes, there are certain places in which the economic reports coincide nearly perfectly. We're seeing really strong business in the U.S. and all the economic reports out of the U.S. including the one this morning continue to be strong. And it actually lines up with everybody's kind of impressions. You walk around major cities and there are cranes everywhere, the job market is tight, unemployment is low.

China always on the reporting side is a little bit of a trickier place to actually understand and I don't really understand to what degree and the flip side of that is Japan is where there's definitely some dissonance between our results and the overall economic one. We're digging into it a little bit more to understand. I'd say at this point we have an imperfect understanding and just for everyone, I mean, we spend a little bit of time trying to understand it. But in some of these things, when it goes beyond what's actionable and what we would do differently as a result of understanding it, it starts being diminishing returns for us to play macroeconomists.

R. Scott Herren
Chief Financial Officer & Senior Vice President, Autodesk, Inc.

Yes, Maggie, maybe the better way to think about China is to step back and say what drove that growth in the quarter, and it's obviously China is a very active construction market. I've been there, as Carl said, you see cranes everywhere. BIM is actually taking off in China. You look at major projects like the new Shanghai Tower and it's being built with BIM start to finish. So that's what's fueling the growth. I think the second part of your question what to expect given the events of the last five days or six days, that's the one where it's kind of a, who knows, at this point.

Avago Technologies (US Semiconductor Producer) - August 26, 2015

Hock E. Tan
President and CEO, Avago Technologies

Industrial revenues - having put that in that context, industrial resales in the third quarter were down in the low-single digits as we saw softness in Europe and Japan, even though China was flat and Americas were up. But while we expect resales in the fourth quarter to improve in China and Europe, uncertainty in industrial market keeps our revenue expectation for this segment to be flat to marginally down sequentially.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.