Strong dollar and revenues tied outside US made IBM share code with China
IBM derives approximate two-thirds of its revenue from outside the United States. Since a strong dollar (UUP) is worsening the demand in China and emerging markets (EEM), IBM has to take extreme steps to boost its operations in China.
China’s economy is slowing
On October 18, 2015, according to the National Bureau of Statistics of China, China’s GDP (gross domestic product) stood at 6.9% in 3Q15. This was better than the 6.7% expectation of economists surveyed by CNNMoney. However, the troublesome point is that this is China’s slowest recorded growth since the financial crisis of 2008–2009.
China’s government is increasingly focused on expanding investments and spending, particularly in the science and technology sector, to counterbalance the flailing performance in the industrial and manufacturing sectors.
We’ve looked before at China’s eagerness to develop its native semiconductor industry. China accounts for ~45% of the worldwide demand for chips. However, it depends on imported integrated circuits for ~90% of its consumption.
As you can see in the above graph, except for oil and gas, China is the world’s largest consumer of the majority of commodities. China’s “Made in China 2025” program reflects its future strategy to develop self-sufficiency.
PBoC’s interest rate cuts to boost slowing economy
To provide a boost to its slowing economy, China cut its benchmark one-year lending rate for the fifth time in 2015. The People’s Bank of China (or PBoC) slashed the one-year lending rate by 25 basis points to 4.4%, effective October 24, 2015. The bank also trimmed its RRR (reserve requirement ratio) by 50 basis points to 17.5%. This is the fifth rate cut in RRR since November 2014.