Beijing’s widening curbs on iPhone use by government staff raised concerns among U.S. lawmakers on Thursday. They fanned fears that American tech companies heavily exposed to China could take a hit from rising tensions between the countries. Apple closed down 2.9%, suffering its worst two-day percentage decline since November — after news that Beijing has told employees at some central government agencies in recent weeks to stop using their iPhones at work. The tech sector dropped four points, the biggest drag on the S&P 500 index and the Nasdaq Composite, as investors assessed whether escalating trade tensions between Washington and Beijing would have broader impacts.
The Wall Street Journal reported on Wednesday that Chinese officials have been instructed to stop using Apple iPhones in sensitive government departments as part of a broader campaign by the ruling Communist Party to reduce dependence on foreign technology in sensitive sectors. The curbs are likely to slow smartphone sales in the world’s largest market, which accounted for about a fifth of Apple’s revenue last year.
Several U.S. tech companies are highly dependent on the Chinese market, including chipmakers like Intel (INTC) and Nvidia (NVDA), which make a large proportion of their products in China, as well as Apple suppliers such as Qualcomm (QCOM), Broadcom (AVGO) and Skyworks Solutions (SWKS). Bank of America compiled a list of S&P 500 companies with the highest exposure to China this week, with casino company Las Vegas Sands (LVS) topping the list with 68% of its revenue coming from the country.
Investors also digested a report in the broader stock market showing that weekly jobless claims fell to 216,000, lower than expected. The drop in claims has prompted some investors to worry that the Federal Reserve will be more inclined to continue its tight monetary policy. However, the 10-year Treasury yield slipped to 4.260%, close to 2023 highs.
Investors were also watching the Chinese economy, which has cooled in recent months amid a continuing slowdown in global growth. Some investors worry that a slowdown in China could lead to lower corporate profits, making it harder for technology companies to justify high spending on research and development.
A vital measure of the Chinese economy’s health, gross domestic product rose by 6.7% in the second quarter, the lowest since the fourth quarter of 2016. Analysts expect GDP to increase by around 6% this year, below an average of 7% over the past three years. This reflects continuing signs that China is losing momentum, even as it makes significant investments in infrastructure and technology. Investors are also concerned that a slowdown in China could impact the global supply chain, particularly in the tech industry. This could increase costs for electronics makers, raising their prices to consumers. That may, in turn, lead to a broader technology sector slowdown. Several analysts warned that 2022 could look much like 2000 for the tech industry, with big companies cutting payrolls and startups measuring burn-rate runways as they brace for a recession.
