China’s economic growth hasn’t been this sluggish in a generation, and it’s hurting the earnings of U.S. companies from McDonald’s to Microsoft.
Once the global economy’s undisputed star, China is likely to grow at its slowest pace since 1990, according to the International Monetary Fund. The IMF expects growth to slow even more in coming years.
“Clearly, growth in China has been disappointing this year,” Vasant Prabhu, the chief financial officer of Starwood Hotels, told investors in late October. A clampdown on entertainment spending by public officials hurt demand, and the Chinese government is Starwood’s biggest customer in some parts of the country. The cutbacks contributed to a decline in the average daily rate paid for Starwood’s rooms in China last quarter. The country is home to 13 percent of all of Starwood’s rooms worldwide.
The slowdown stands in contrast to the positive outlook executives were voicing earlier this year, says Goldman Sachs strategist David Kostin. It’s also out of sync with other regions: Europe’s economy pulled out of a recession this spring and has been a surprisingly stable source of revenue for many companies.
Corporate America continues to consider China an important market and expects growth to turn around. Although China’s economic growth rate has slowed, it’s still much stronger than other major economies.
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