iPhone demand wanes as Chinese tighten belts

News

January 3, 2019 - 9:25 AM

BEIJING (AP) — Apple Inc.’s $1,000 iPhone is a tough sell to consumers in China unnerved by an economic slump and the trade war with the U.S.

CEO Tim Cook said in a letter to shareholders released Wednesday that demand for iPhones is waning and revenue for the last quarter of 2018 will fall well below projections, a decrease he traced mainly to China.

The tech giant is just the latest global company grappling with increasing Chinese consumer anxiety. Other brand names such as Ford Motor Co. and jeweler Tiffany & Co. already have reported abrupt declines in sales to Chinese buyers.

China still is one of the fastest-growing economies, with 2018’s expansion forecast at about 6.5 percent. But China’s tariff fight with the U.S. and an avalanche of bad news about tumbling auto and real estate sales are undermining consumer confidence after two decades of almost unbroken rapid growth.

“People are worried about losing jobs,” said Emily Li, a 37-year-old advertising designer in Beijing. She said she is putting off replacing her car or making other major purchases.

Weakness in Chinese demand is especially painful for Apple and other smartphone makers. China accounts for one-third of the industry’s global handset shipments.

Shipments in China fell 10 percent from a year earlier to 103 million handsets in the quarter ending in September, according to research firm IDC. It expects last year’s total Chinese purchases to shrink by 8 to 9 percent compared with 2016.

The belt-tightening in the world’s second-largest economy is bedeviling global industries, including autos and designer clothing, that count on China to drive sales growth.

The trade war with Washington has shaken a “sense of China’s invincibility,” said Mark Natkin, managing director of Marbridge Consulting, a research firm in Beijing. Chinese are waking up to the fact that their economy is vulnerable to the uncertainties of the global economy, he said.

The slump is a setback for the ruling Communist Party’s efforts to nurture self-sustaining, consumer-driven economic growth and wean China from its reliance on exports and investment.

China’s third-quarter economic growth of 6.5 percent was stronger than most other major economies, but the country’s lowest since the 2008 global crisis.

Beijing has propped up growth with higher government spending, helping to offset painful contractions in some areas.

Still, auto sales in the biggest global market are on track for their first annual decline in three decades after plunging 16 percent in November. Soft real estate sales have forced developers to cut prices.

Overall, export growth decelerated to 5.4 percent over a year earlier, less than half October’s 12.6 percent rate.

Sales to the U.S. market have held up despite Trump’s punitive tariffs on $250 billion of Chinese goods, rising 12.9 percent in November over a year earlier. But that was thanks partly to exporters rushing to beat further American duty increases — a trend that is starting to fade.

Apple’s setback also highlights another challenge: increasingly capable Chinese competitors whose products cost less.

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