Fisheye and Aerial View of Beijing Skyline at Night
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A deepening economic slowdown in China poses a growing risk to sectors such as tech that have larger-than-normal exposure to the country, says Fitch Ratings.

In a new report, the rating agency noted that China’s slump — Fitch recently lowered its GDP forecast for this year to 2.8% from 3.7%, and its call for 2023 to 4.5% from 5.3% — represents a threat to the revenues and cash flows of sectors with closer ties to China’s economic fortunes.

Fitch noted that about 7% of corporate revenue for companies in the S&P 1500 index is generated in China, but that for some firms, more than one-third of revenue is tied to China.

The tech sector — namely equipment producers and solution providers — “is most directly exposed to the Chinese market,” it said.

A more severe slowdown, along with headwinds such as escalating geopolitical tensions between the U.S. and China, “increases the risk of greater earnings volatility over the next several quarters,” Fitch said.

“We expect Chinese consumer spending growth to decelerate, partly due to the unprecedented slump in consumer confidence in recent months linked to zero-Covid-19 policies and relatively high unemployment,” it said. “This could affect demand for consumer electronics and other discretionary products produced by U.S. companies.”