Despite the Chinese government’s efforts to stimulate the economy and reverse the bleak economic situation, China’s economy continues to languish, leaving the outside world feeling hopeless about economic recovery. Major global companies have begun to cut prices and costs, downsizing their operations in China.
According to a report by Reuters on October 28, companies like Hermes, L’Oreal, Coca-Cola, United Airlines, Unilever, and Mercedes-Benz have expressed concerns about the current state of the Chinese economy. The ongoing real estate crisis in China, high youth unemployment rates, and restrained consumer spending have contributed to a challenging business environment.
In late September, Beijing outlined stimulus measures to support the economy, but many of these measures lack detailed explanations, let alone significant impact on consumer confidence.
Some companies have already started adjusting their strategies in China. French carbon graphite manufacturer Mersen announced last week that it would close a factory producing power transmission products in China due to the inability to compete with local rivals.
Meanwhile, international food companies like Danone and Nestle are increasing their efforts to reduce prices or enhance online shopping volume.
During a financial earnings call on October 23, Coca-Cola CEO James Quincey remarked that the business environment in China remains challenging. “The economy doesn’t seem to be improving,” he told investors.
Although the CCP government has promised more assistance, the extent and timing of further stimuli remain uncertain, and investors currently lack confidence in the effectiveness of the government’s measures.
United Airlines CEO Scott Kirby told Reuters, “We used to have about 10 planes flying to China daily, but I think those days are gone.”
United Airlines now operates three flights per day from Los Angeles to Shanghai, and Kirby expects this situation to persist. “It’s a completely different world,” he added.
Amid the third-quarter earnings season, the performance of major multinational corporations further reflects that the Chinese market no longer provides the growth opportunities as it did in the past. Several company executives have acknowledged the challenges faced in the Chinese business environment.
The luxury goods industry has been hit hard by China’s economic downturn, as economic uncertainty has put pressure on Chinese middle-class shoppers, even leading affluent consumers to hold back on spending.
Luxury leader LVMH’s disappointing performance was announced last week. The company stated that Chinese consumer confidence has hit its lowest point since the pandemic began, leading to a deterioration in demand for luxury goods this quarter. Luxury conglomerate Kering also warned last week that soft Chinese demand was hindering the recovery of its flagship brand Gucci, potentially resulting in the lowest annual profit since 2016.
Luxury brand Hermes, while not as severely impacted by China’s economic slowdown as its competitors, is compensating for decreased foot traffic in China by raising the average basket value and boosting sales of jewelry, leather goods, and men’s and women’s clothing.
Ermenegildo Zegna, Chairman and CEO of Italian luxury group Zegna, anticipates that the “difficult” period for the Chinese economy will continue at least until early 2025.
The “Double Eleven” shopping event has commenced, with many local suppliers expecting flat or modest sales growth, noting that consumers remain very frustrated about China’s economic predicament.
46-year-old Zheng Li told Reuters that she used to take the “Double Eleven Festival” very seriously, shopping for clothes and daily necessities, but she no longer feels the same enthusiasm. This year, she can’t find anything that sparks her buying interest. Perhaps she’ll buy a down jacket for her son.
Heavy industries are also enduring tough times, with the situation expected to persist.
After announcing quarterly earnings on October 17, Silvio Napoli, CEO of Swiss elevator and escalator manufacturer Schindler, emphasized, “I want to emphasize that so far, there are no signs of economic recovery, no signs at all.”
Napoli, who returned from China earlier this month, stated that he did not see any signs of the market bottoming out. China accounted for 15% of Schindler’s revenue last year.
He believes that the CCP’s stimulus measures are not the “rocket launcher” the economy needs, and circumstances may become clearer when the company announces full-year performance in February next year.
There may be more pessimistic assessments in the future, as only a few companies out of hundreds in the pan-European STOXX 600 index and the US S&P 500 index have reported earnings so far.
Multinational corporations also face other potential challenges.
In the domestic market, European automakers and appliance manufacturers like Electrolux are competing with Chinese low-cost products.
With the US presidential election approaching, regardless of the winner, the US-China trade dispute is expected to continue. Trump has stated that if re-elected, he will impose a 60% import tariff on Chinese products, putting immense pressure on Chinese industries.
The Biden administration’s national security adviser recently reiterated the “backyard high wall” strategy to counter the second wave of impacts from China.
This week, the EU will impose tariffs of up to 35.3% on electric cars made in China, intensifying the trade dispute with Beijing, which has already taken retaliatory measures.