Major global firms warn of slow China sales as post-pandemic surge fades

 Major global firms warn of sluggish Chinese sales as post-pandemic surge fades

(Reuters) - Global firms from consumer goods giant Unilever to automaker Nissan and machinery maker Caterpillar have warned of a slowdown in earnings in China as the world's second-largest economy falters in its post-pandemic recovery.

The recovery has been limited to a few sectors such as travel, dining and luxury goods, leading to double-digit sales growth in China for companies such as Starbucks, LVMH and Hugo Boss. But many of these bellwethers stopped short of raising their China outlook, worried about lackluster economic numbers.

"What we're seeing is a very cautious consumer in China, a declining property market and reduced export demand," Unilever Chief Financial Officer Graeme Pitkethly said last week in an April-June earnings call.

"There is high unemployment in China, especially youth unemployment... As far as we can tell, we are at an all-time low in terms of Chinese consumer confidence."

Beijing has introduced a series of policy measures in recent weeks to prop up the faltering economy, but weak manufacturing data for July on Tuesday showed it is still far from turning the corner.

This is a particular blow to major European exporters to China, which are already struggling with persistent global price pressures and rising borrowing costs.

Ireland's Kerry Group, which supplies ingredients to the likes of McDonald's, said its volumes in China have increased since the end of the COVID restrictions.

But Edmond Scanlon warned on Wednesday that business there would not return to normal until 2024.

"Any (stimulus) announcements from China are going to boost growth rather than revive growth," said Jack Janasiewicz, portfolio manager at Natixis in Boston. "It's not too surprising that you're starting to see some of that filter into the background of revenue."

Global automakers have to contend with increased competition from rivals in China, which took more than 50% of the Chinese market share for the first time in the first half of 2023. Volkswagen cut its full-year sales target last week after falling sales. in China, its main market.

"Unfortunately, our (China) sales outlook now falls well below our production capacity," Nissan CEO Makoto Uchida said last week. It will likely take some time to restore profits in the world's largest auto market, he said.

Earnings expectations for the second quarter are already low, partly due to weakness in China. Refinitiv I/B/E/S data shows that US and European companies are expecting their worst quarterly results in years.

A short-term recovery in economic activity after China lifted its long COVID-19 restrictions is also highlighting weak global demand, DHL Group, one of the world's biggest carriers, said on Tuesday.

The company saw a 16% and 7.1% drop in air and sea traffic in the first half, respectively, mainly on routes between China and its two biggest trading partners, the United States and Europe.

Chipmakers such as Samsung and SK Hynix have said that China's reopening has failed to revive the smartphone market and that they are expanding restrictions on the production of NAND memory chips used in mobile phones to store data.

Even Apple, the world's most valuable company, is likely to report flat iPhone sales in its third-largest market when it reports results on Thursday. Still, that would be an improvement on the 2.1% contraction that researcher IDC estimated for China's overall smartphone market in April-June.

The prolonged slump in the real estate sector has also affected leading miners and manufacturers of heavy machinery.

"We had expected sales in China to be below the typical 5% to 10% of our corporate sales. We now expect further weakness as the 10-ton-plus excavator industry has declined even more than we expected," Caterpillar CEO Jim Umpleby said on Tuesday on the earnings call.Rio Tinto, the world's largest iron ore producer, is cautiously optimistic about China as the government has promised more policies to support growth.

"Our experience with China is that if things go worse, then the Chinese have a pretty impressive ability to manage the economy as well," Rio Tinto Chief Executive Jacob Stausholm said after the results were released last week.

Restaurants, hotels and luxury goods manufacturers are among the few bright spots as Chinese consumers spend after the lifting of COVID-19 restrictions.

Starbucks reported a 46% increase in comparable Chinese sales last quarter. "We would say we expect our recovery in China to be sustained," Starbucks Chief Financial Officer Rachel Ruggeri told investors on Tuesday.

Yum China, owner of the KFC and Pizza Hut chains in mainland China, reported a 25% rise in quarterly revenue but said spending per person fell as consumers became "more rational" in their spending.

Hotel operators Hilton and Marriott have seen a rebound, with Marriott saying on Tuesday that quarterly room revenue in China rose 125% from a year earlier. "The recovery in China has come faster than we expected," Marriott Chief Financial Officer Kathleen Oberg told investors.

LVMH, whose 75 brands include Louis Vuitton and US jeweler Tiffany, reported a better-than-expected 17% rise in global sales in the second quarter due to a recovery in China, but did not give an outlook for the rest of the year.

"The global mood is not what we saw in 2021 and 2022," LVMH finance chief Jean-Jacques Guiony said last week. "We are not visible, (but) we are not pessimistic and we have no reason to be (pessimistic) about China."

(This story has been corrected to change the day to Tuesday in paragraph 25)(Reporting by Reuters; Writing by Miyoung Kim and Josephine Mason; Editing by Christopher Cushing, Catherine Evans and Mark Potter)

In the wake of the COVID-19 pandemic, China's remarkable post-pandemic economic growth has caught the world's attention. However, major global firms are now expressing concerns about a slowdown in their sales and operations in the country. As the initial surge caused by the pandemic recedes, companies are facing new challenges in the Chinese market. In this article, we'll examine the factors contributing to the slowdown and examine how businesses can adapt to this changing environment.

Post-pandemic economic slowdown

As the pandemic began to recede, China experienced a rapid economic recovery, catapulting the country back to pre-pandemic growth. However, the post-pandemic economic boom was never meant to be sustainable in the long term. Big global firms, once powered by the boom, are now witnessing a gradual softening of consumer demand and overall economic activity. Post-pandemic, economic slowdown, rapid recovery, sustainable growth, consumer demand.

Market saturation and competition

The vast Chinese market presents unique opportunities for businesses, leading to the rise of international players across various industries. As a result, the market is increasingly saturated, making it difficult for companies to maintain the same level of growth experienced during the initial phase of the recovery.Market saturation, competition, international players, growth, recovery phase.

Geopolitical tensions

The geopolitical environment is another critical factor affecting global firms' sales in China. Ongoing trade disputes and diplomatic tensions between China and other nations have led to uncertainty and unpredictability in cross-border trade. This has led companies to reassess their market strategies and in some cases face regulatory challenges.Geopolitical tensions, trade disputes, diplomatic tensions, cross-border trade, regulatory challenges

Changing consumer behavior

The pandemic has significantly changed consumer behavior with a surge in e-commerce and digital consumption. While these changes have been seen around the world, China, with its tech-savvy population, has been quick to embrace the digital shift. Companies that fail to adapt to this transformation will struggle to reach consumers and gain market share.Consumer behavior, e-commerce, digital consumption, tech savvy, market share.

Strategies for navigating in slow motion

Despite the challenges, China remains a crucial market for many global firms. To successfully manage the slowdown, businesses must adopt innovative strategies:

 Digital Transformation: Embrace digitization and prioritize online channels to reach a wider audience and increase consumer engagement. Digital transformation, online channels, consumer engagement. Localization: Adapt products and services to the specific needs and preferences of the Chinese market.

 Localization, Chinese market, specific needs, preferences.

 Diversification: Explore opportunities in emerging sectors and secondary cities to diversify income streams. Diversification, emerging sectors, secondary cities, income streams.

Strategic Partnerships: Work with local partners to gain market insight and build a stronger position. Strategic partnerships, local partners, market insights, stronger presence.As China's initial post-pandemic surge begins to fade, major global firms are facing headwinds in the Chinese market. Market saturation, geopolitical tensions, changing consumer behavior and other factors contributed to the slowdown.

 However, with the right strategies in place, businesses can adapt to the evolving environment and continue to take advantage of the vast opportunities that China offers. Embracing digital transformation, focusing on localization, diversifying operations and creating strategic partnerships will be critical to maintaining competitiveness and prosperity in the post-pandemic era.