Chinese firms brush off US tariff risks with domestic confidence
Corporate China has since gone out of its way to assuage investors and tout its ability to weather tariff risks, citing experiences from Trump's first administration and that their businesses ultimately are not that exposed to the US.
Overseas revenue only accounts for 10 to 15 per cent of total revenue for Shanghai or Shenzhen-listed companies – so-called A-shares – and close to 12 per cent for the country's benchmark CSI300 index, according to Steven Sun, head of research at HSBC Qianhai Securities. 'The US specifically only accounts for less than 2 per cent of CSI300's total revenue.'
This means there is a fundamentally limited impact on A-share earnings. 'China is less reliant on the US for its exports than before,' Sun said, noting that the US accounted for around 20 per cent of China's exports in 2018 compared with around 14 per cent today.
Companies are also highlighting a shift in supply chains, and are doubling down on research and development to boost growth, according to a Bloomberg News analysis of corporate transcripts and filings in April and May.
Luxshare Precision Industry, a major Apple supplier, told shareholders that products exported to the US were no longer produced in China since the start of the trade war from 2018.
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'Although tariffs may affect the consumption sentiment of importing countries, we have always relied on diversified development to buffer various challenges,' chairperson Wang Laichun said on an earnings call in early May. 'Even if the market is slightly affected, we can still digest it and ensure the steady development of the company.'
Testing defiance
Companies' defiant mindset is being put to the test as US-China tensions are rising again, following a brief surge of relief induced by the tariff truce last month.
Trump – hours after claiming China violated its agreement with the US – expressed confidence a conversation with Chinese President Xi Jinping could ease fresh trade tensions, though China has since accused the US of violating their recent trade deal and vowed to take measures to defend its interests, dimming prospects of further bilateral talks.
Shenzhen-based DR Corp, which makes jewellery products, sped up the process to make its supply chain more global, though it remains optimistic about the US market in the long run and will continue to increase investment and promotion for the country.
'In the face of uncertainty in the US market, we have developed a new strategy to deal with the situation: we will consider brand building and retail operations separately, and focus on increasing investment in brand building,' according to a conference call transcript in May.
When US-China tensions peaked with tariffs as high as 145 per cent for Chinese goods, domestically-focused corporations such as Wens Foodstuff Group, which offers livestock and poultry farming services, said the trade war has little impact on its production costs.
'The company predicts the possible impact of the Sino-US trade war in advance, and reserves a certain amount of medium- and long-term feed raw materials when prices are relatively low,' according to a late-April earnings call transcript.
The domestic recovery of China's economy is more important for Chinese firms, said Bloomberg Intelligence analyst Marvin Chen.
China has been dealing with US tariff hikes for the past seven to eight years, so corporates have already been realigning supply chains, according to Chen. 'Tariffs may impact corporate sentiment, but the expectation is that domestic policy support will do enough to offset the impact.'
Lingering export risks
Still, first-quarter earnings have been a mixed bag.
'While the stimulus measures implemented at the end of 2024 are beginning to feed through to the domestic economy, the results from China tech giants have diverged somewhat, due to competition and a fragile consumer recovery,' Chen said.
In mid-April, Chinese appliance maker Midea Group said Chinese exports face more uncertainties this year, while trade frictions caused by tariffs have increased the operating costs of home appliance companies.
Factory orders meanwhile slumped the most in April since September 2022 as US tariffs took a toll on smaller exporters despite the trade war truce, while Chinese earnings saw a sharp downward revision that month as tariffs peaked.
Even though rates have come down since, they are still higher than before, which will put pressure on Chinese exporters, HSBC's Sun said. 'Most companies have remained cautious about the trajectory of tariffs, with 2025 consensus earnings forecasts being mostly flat since Apr 12.'
'There is still high uncertainty in what happens in 90 days, if a trade deal can be reached, and if so what the details will be,' Chen said, adding that impacts from additional tariffs can start to be observed during mid-year results. BLOOMBERG
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