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Lockdowns loom over Shenzhen, China, as COVID-19 spreads

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Yahoo Finance anchors discuss the latest news coming out of China, including Apple discounting products, COVID-19 lockdowns in Shenzhen, and slowing growth.

Video Transcript

[MUSIC PLAYING]

AKIKO FUJITA: Well, Apple is dramatically discounting top products in China, including its iPhone 13 Pro, AirPods, and Apple Watches. The move coming as consumer spending takes a hit from COVID induced lockdowns throughout Chinese cities. And Brian, we're highlighting this because China, as a business overall-- we're talking about greater China-- makes up roughly 20%--

BRIAN CHEUNG: It's huge.

AKIKO FUJITA: --of Apple's business. And we've certainly seen them take a hit. I mean, if everything is closed, right, nobody's going out and actually purchasing something. And that's--

BRIAN CHEUNG: Well, I would say that, actually, with the Apple story, especially with iPhones and laptops, I mean, you can make the argument that the story of demand for those types of products isn't as tied to any sort of demand rebound post-pandemic or through the pandemic because if you needed a new phone through the pandemic, you still could have ordered one and had one shipped to you.

AKIKO FUJITA: Well, and if you thought it was worth investing in, right? I mean, maybe that's what it comes down to, is it worth the cost?

BRIAN CHEUNG: Right, but I just don't think that people wanted to get an iPhone after the pandemic because the economy reopened, right? I don't know how strongly those things are tied together. And in the story of Apple wanting to discount it, which we do have to acknowledge is a rare thing-- I mean, I can't remember the last time I have seen a sale at an Apple store itself--

AKIKO FUJITA: iPhone discounts, yeah.

BRIAN CHEUNG: --off of iPhones. But this does show that Apple does recognize that they need to do something to try to stimulate more demand there. Now, what is the story in China for why they need to do that? I don't know if that's necessarily tied to any sort of post-pandemic rebound in demand, so much as it might be just other types of agnostic factors, right? Like, it would be a different story if we're talking about Disneyland Shanghai, right?

AKIKO FUJITA: True, true. But if you're not going out, I mean, yeah, I guess you could have your phone delivered. But that does cut back on foot traffic, people coming through the stores, thinking about purchasing something. I mean, there is some hit there.

BRIAN CHEUNG: Absolutely. Yeah, and you go into the store, well, not only are you going to walk away with the phone, you'll be more likely and more inclined to grab a case off the shelf or a screen protector and what have you. But again, I just think it's a little bit more of a stretch to say, like, well, this is just part of the post-pandemic story here.

AKIKO FUJITA: Probably not-- probably a little more layered than just--

BRIAN CHEUNG: Right, well--

AKIKO FUJITA: --their shutdowns and people aren't buying is what you're saying.

BRIAN CHEUNG: And this could be Apple's business effort to try to recover some of the demand that maybe was lost because of the shutdown. Certainly, yes, that might be part of it, especially so when you consider that there are these other news headlines that there could be other cities shutting down, right? You see these headlines coming out of Shenzhen, that very important tech city down in the southern part of China. They've been apparently telling some companies, unconfirmed, that they should start to prepare for not shutdowns, but just making sure that you can contain your workers and-- you know.

AKIKO FUJITA: It's kind of a closed loop.

BRIAN CHEUNG: A closed loop is exactly-- yeah. So, again, are we going to see another full shutdown like we saw at the beginning of the year? Not necessarily the case, but those fears and the jitteriness is still very much prevalent.

AKIKO FUJITA: Well, when you talk about China, broadly, right, that there is a supply and demand story both happening within the country. I mean, the supply side or the demand side, I should say. I mean, sure, it could be layered a bit more beyond just the closures, but the factory shutdowns are really going to hurt.

BRIAN CHEUNG: Yeah, well, Foxconn is down there in Shenzhen.

AKIKO FUJITA: And not just-- yes, Foxconn, obviously, the largest manufacturer. But not just Apple, but so many of these companies who are trying to recover the lost time between April, when they had the big shutdowns in places like Shanghai, going into May, now we're talking about additional COVID potential closures. Right now, we're talking about a loop, so the factory is not shut down-- we should stress that.

BRIAN CHEUNG: No, right.

AKIKO FUJITA: But that's going to weigh on the outlook.

BRIAN CHEUNG: Yeah, and certainly-- I mean, also, when you consider just the fact that-- and we've been talking about this, right? We do not know if there's going to be another variant at some point down the line that could spur something like we have seen at the beginning of this year with basically shutdown of the country itself again.

You do wonder about what impact this has over-- and we made this point before-- over the longer term, right? What does this do to Chinese consumers that maybe are a bit more apprehensive to engage in this economy or maybe even want to leave the country, right? You've already seen a lot of expats wanting to leave the country.

And it's not to say that, OK, this is going to turn into some brain drain or whatever. But these are all stories that ended up themselves do have longer term implications. And what that means, it's a little bit too early to say, but you do wonder how that kind of embeds into the psychology of how the economy operates.

AKIKO FUJITA: Yeah, and also what it means for corporates who are in China. Is it sort of time to diversify? I mean, that conversation has been going on for a--