Daily Brief: China Started The Year With A Bang. Shame About What Could Be Next.

Daily Brief: China Started The Year With A Bang. Shame About What Could Be Next.

almost 2 years ago3 mins

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Fresh data out on Tuesday showed that Chinese retail sales grew by more than expected at the start of the year, but the country might be headed straight back to its starting point.

What does this mean?

The Chinese economy was off to a flying start at the beginning of the year, as folk in the country splashed out to celebrate Chinese New Year and Beijing’s Winter Olympics. And they weren’t fussy about what they bought: spending was up in all but one of the retail categories from the same time last year. The biggest rises were in fuel and jewelry, but car sales – which actually fell during a lot of last year – chipped in too. Overall, retail sales in January and February – combined to even out the Lunar New Year’s impact since it can fall in either month – grew by 6.7% from the same time last year, much higher than the 3% analysts expected.

China retail sales
Source: SCMP

Why should I care?

Zooming in: Not too fast…

China’s strong start mightn’t last long: the country’s now battling its biggest surge in Covid cases since the start of the pandemic, with over 45 million people back in lockdowns as a result. Add in that Goldman Sachs predicted last week that rising oil prices could cut China’s economic growth by 0.5%, and plenty of economists now doubt the country’s economy will hit its goal of growing 5.5% this year. And that – along with fears of new sanctions over its ties to Russia – might be why an index tracking some of China’s biggest companies fell 5% on Tuesday.

China Covid cases

The bigger picture: Apple’s feeling it.

Lockdowns in China – the world’s biggest manufacturing hub – have been shutting down production plants around the country, and that’ll have a major impact on global supply chains. Foxconn, for one, just closed its Chinese production sites that were busy whipping up the latest iPhone 13. That could really hurt Apple’s sales, and investors know it: they sent Apple’s shares down to their lowest since November this week.

Apple stock
Source: Google Finance

Keep reading for our next story...

Volkswagen Reported Strong Results

VW image

Volkswagen proved an age-old adage this week, reporting strong results even though supply shortages hit its production last year.

What does this mean?

Supply issues meant Volkswagen was lacking a few key production parts last year, so it only ended up selling 8.6 million cars in 2021 – 6% lower than the lockdown-stricken year before. But the carmaker brought in a new strategy faster than you can say, “drive bigger”: it focused on selling more expensive high-end models to make up for lost sales on its more affordable cars. And boy, did that pay off: Volkswagen made 12% more in revenue last year than the one before, and even almost doubled its pre-tax profit – partly because it managed to cut overhead costs by 10% a year earlier than planned.

Why should I care?

Zooming in: Volkswagen has big plans.

Volkswagen might’ve sold fewer cars overall, but sales of its electric vehicles (EVs) – its biggest focus – nearly doubled last year. That helped the carmaker finish the year with a quarter of the European battery EV market in its clutches, making it a market leader in the region. And it looks like Volkswagen’s shooting for even more of the market: it’s expecting to use the cash it raises from its planned listing of Porsche later this year to help it build six European battery plants and speed up its electrification.

VW sales
Source: The Wall Street Journal

The bigger picture: China’s in control.

Volkswagen’s just one of the many western carmakers planning to build battery plants these days, but it doesn’t seem like China’s ready to release its dominance over the sector anytime soon. Quite the opposite: the country’s battery makers – including CATL, CALB, and Svolt – are all planning big expansions over the coming years, which might be why China’s still predicted to make up about two-thirds of the sector’s manufacturing capacity by the end of 2030.

China still dominant


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