China: A Weary Dragon
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Corporate America's role in China has become somewhat unpredictable. Companies like Home Depot are exiting the country altogether while others, like manufacturing giant General Electric, are banking on their presence in the region for future growth. China is in many ways a dicey proposition for American companies at the moment as it continues to facilitate growth for some while its economic pullback weighs on others. Where companies fall on the China growth spectrum is uncertain at best.
If you ask trader Jim Rogers, commodities are the way and China is the place to invest. I heard him say in a recent interview that his children were learning how to speak Mandarin Chinese, which in his view spoke to where he saw the economic power shifting in the future. Nonetheless, China's economic growth has slowed as evidenced by the weakness that Alcoa is experiencing in its commodities exports. For others, the slowdown has been even more severe.
Nonetheless, China is kind of like the tale of two countries for U.S. corporations depending on the sector in which companies operate. Hotel giant Marriott International (NYSE: MAR), for instance, is by some measures doing well in certain Chinese cities. It has a presence throughout Shanghai and Beijing and its hotels in those cities are performing well, according to CEO Arne Sorenson in a recent CNBC interview. Marriott hotels are experiencing some weakness, however, in southern China, where the regional economy is heavily linked to trade to beleaguered European countries.
International Paper Company (NYSE: IP), which recently increased its quarterly dividend by 14% to thirty-cents per share, has experienced a notable slowdown in China. The excess cash flow is impressive given the economic headwinds felt around the world.
John Faraci, the company's chief executive, recently noted on CNBC that despite data identifying China's economic growth at some seven percent, the slowdown appears worse to IP. He went on to say that he would peg economic growth in the region at a meager two-to-three percent. International Paper relies on export activity in China for much of its client base in the country.
Housing-related stocks like Home Depot (NYSE: HD) are a bit of an anomaly when it comes to international expansion given the domestic comeback that the sector is still staging. While U.S. housing has shown some early chutes of recovery, Home Depot chief executive, Frank Blake, recently told Reuters that it will be another two years before a formidable change occurs. The retailer has shifted its focus away from international expansion and is instead focused on the domestic market and internet sales, says Reuters.
Since nearly slashing its retail presence in China since it entered the region in 2006, the company most recently decided to close its seven remaining big-box locations in the country amid feeble economic conditions and offering consumers a do-it-yourself product that, according to The Wall Street Journal, didn't resonate with locals. Home Depot is taking a hefty $160 million charge in the third quarter a result of the exodus from China and since that announcement the dividend paying stock is relatively flat.
The U.S. and China have a couple of things in common right now. Both economies are under stress and both countries have a major election occurring in about a month. Executives at Blackrock, an asset manager with some $3.5 trillion in assets under management, have been vocal about the economies in both nations. Blackrock's chairman of the Asia Pacific business recently told Bloomberg BusinessWeek that a rare and expected change in the communist nation's political leadership will position invigorate China's (weary) economy.
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