Worries about Beijing's decision to devalue China's yuan and the slowing economic growth of the world's most populous country are pushing down shares of U.S. companies with significant business ties there.
The U.S. does about $579 billion in goods and services trade with China, which is the world's second-largest economy and America's second-largest trading partner. "American exports to China rose steadily until late last year," said Clayton Dube, director of the USC US-China Institute, in a press release. "At their current rate, they'll be 5 to 10 percent lower than in 2014. This has been primarily because of the slowing economy. The diminished value of the yuan will probably exacerbate this trend."
China has already taken extraordinary steps to prop up its stock market, including curtailing the activities of short-sellers, who profit when share prices go down. Coupled with the yuan's devaluation, these efforts indicate that officials in Beijing are growing increasingly worried that social unrest may result if the economy continues to falter.
Those problems also mean new headaches for U.S. companies with big stakes in the Chinese economy, like these five:
Yum Brands (YUM)
The corporate parent of KFC, Taco Bell and Pizza Hut earned more than half of its $3.1 billion in revenue during in the latest quarter from China. The company's Chinese business has been hurt by concerns raised by the media there about the quality of its food. Same-store sales, a key metric measuring sales at locations opened at least a year, fell 10 percent during the latest quarter. Yum CEO Greg Creed is clearly frustrated by its performance in China, noting during the company's recent earnings conference call "the recovery is taking longer than we would like." Yum's shares have slumped more than 7 percent over the past month.
During the second quarter, sales in the heavy equipment company's Asia-Pacific region, which includes China, plunged 22 percent to $2.24 billion. Caterpillar blamed weakness in China's construction and mining sectors for its disappointing overall financial performance. Its shares have slumped more than 12 percent over the past month. The Illinois-based company is due to report its next quarterly results on Aug. 19.
Given the growing fondness among Chinese for high-end goods, the luxury retailer has moved quickly to gain share. During the first quarter, the New York-based company opened two new stores in China. But revenue in Tiffany's Asia-Pacific region slumped 1 percent to $259 million, despite a "noteworthy" increase in China, Australia and Singapore. However, revenue posted "meaningful" declines in key Chinese markets Hong Kong and Macau. Tiffany's shares have slumped 15 percent since the start of the year. Tiffany also counts on revenue from foreign tourists, many of whom are Chinese, who shop at its stores in the U.S. It's due to report results on Aug. 27.
Although the retailer doesn't yet have stores in China, many Chinese tourists travel to the U.S. to shop at Macy's flagship stores. But the strong U.S. dollar and weakened yuan is putting these customers in a bind. Macy's, which had been a Wall Street favorite, reported disappointing results earlier this week. But it's doubling down on China: It has also announced the formation of a joint venture with a Chinese company to target consumers via e-commerce in China, which Macy's cited as "one of the world's largest and fastest-growing consumer marketplaces."
General Motors (GM)
China's plummeting stock market has caused auto sales to drop off, which is bad news for General Motors given what a key market this has become for the carmaker. The China Association of Automobile Manufacturers slashed its sales growth forecast by more than half to 3 percent. Monthly sales in China slumped 4 percent, although the Detroit-based company said it "expects strong results in China will be sustained through (the second half) of 2015 under the current industry and pricing outlook."