China’s Shanghai Composite Index continues to fall, causing a whole lot of hand wringing about U.S. companies that count on the growing Chinese middle class.
One of the most vulnerable companies appears to be Apple. The Chinese market accounted for about a quarter of the Apple’s revenue last quarter; China is responsible for a lot of the company’s growth.
The Economist publishes something called the “Sinodependency Index,” a ranking of how dependent U.S. companies are on China. Apple’s at the top.
“On the surface it looks like, ‘Oh, this might be bad, this might mean sales will drop,'” says Chris Christopher from IHS. But he says a Chinese stock market meltdown does not mean disaster for Apple. He expects Chinese consumers will continue to pay a premium for Apple’s products.
It helps that the near-term fortunes of the Chinese middle class aren’t that closely tied to the fortunes of the markets.
“In China, because people have high savings, they have a huge cushion,” says professor Linda Lim from the University of Michigan’s Ross School of Business. The Chinese middle class also have jobs. So Lim thinks “the consumption part of the Chinese economy should be relatively stable.”
But China’s economic slide could pinch Apple in other ways.
Consider the devaluation of the Chinese yuan.
“When the sales in China get converted to U.S. dollars, it has a negative impact in how much gets converted back to U.S. dollars,” says Gene Munster, an analyst at Piper Jaffray.
Some of Apple’s manufacturing contracts are agreed to in dollars, which could also hurt the company’s bottom line.
Apple could raise prices of the iPhone in China, but that might encourage Chinese smartphone buyers to look more closely at the competition.
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