Hello everyone, welcome to “News Perspective”, I am Xin Li.
Today’s focus: Chinese catering enterprises’ first-half financial reports are unbearable, with Haidilao’s net profit plummeting nearly 133 times! “Survival” has once again become the cry of all catering industry owners! Middle-class consumers tighten their belts during outings, while the lower-class citizens are crying out in bitterness.
Recently, Taiwan’s well-known chain restaurant brand “Din Tai Fung’s” subsidiary – Beijing Heng Tai Fung Catering Co., Ltd. announced the closure of 14 branches in North China (including one in Xiamen) and will gradually withdraw by the end of October, affecting around 800 employees.
Beijing Din Tai Fung stated that as the company’s business license has expired after a twenty-year period, and the board of directors failed to reach a consensus on renewal, the company decided to close the 14 branches in Beijing, Tianjin, Qingdao, Xi’an, Xiamen, and other cities by October 31.
According to Din Tai Fung’s official website, the brand has 31 branches in mainland China. Besides the 14 branches to be closed by the end of October, the remaining branches are as follows: 8 in Shanghai, 2 in Guangzhou, and 1 each in Hangzhou, Ningbo, Wuxi, Suzhou, Shenzhen, Nanjing, and Jiaxing.
In fact, while Din Tai Fung is withdrawing from China, it is actively expanding its stores in other parts of the world, including Japan, the United States, South Korea, the United Kingdom, and even the United Arab Emirates.
Not just Din Tai Fung, for the catering industry in China, the biggest feeling in the first half of this year is “difficult, too difficult”. Despite the end of the epidemic lockdown, the catering industry remains collectively devastated.
Data shows that over a million catering establishments closed in the first half of this year, almost catching up with the total for the entire previous year, which is twice the number of closures in the whole of 2022. Numerous catering operators have lost all their capital and can only exit in disappointment. Many large catering enterprises are facing drastic profit declines.
Among them, the biggest drop in profits is seen in Haidilao. In the first six months of this year, the net loss was around 260-280 million yuan, compared to a net profit of 2.12 million yuan in the same period last year, a nearly 133-fold drop in net profit. Even Luckin Coffee, in its first half financial report, only recorded a net profit of about 788 million yuan, a 50% decrease compared to the same period last year.
With weak consumer spending and sluggish domestic demand in China, operating in the service sector, including catering, is not easy. For foreign investors, the business environment in China is becoming increasingly unfriendly. IBM, the American technology giant, announced on August 26 that it will shut down its research and development department in China, laying off over a thousand employees and moving its R&D operations to other countries. This is the latest move of a top American tech company withdrawing from China, drawing attention.
In recent years, amid heightened U.S.-China competition, the Chinese government has been aggressively promoting the “de-Americanization” of the tech industry under the “Clear American technology” campaign. The Communist Party has directed local governments and state-owned enterprises to purchase more tech products from Chinese suppliers, benefiting IBM’s Chinese competitors, leading to a substantial drop in IBM’s market share in China. IBM stated that its revenue in China dropped by 19.6% last year.
IBM has informed some employees that the company will be creating additional positions outside of China, including in Bangalore, India. Following this news, IBM’s stock price rose by 0.96% on August 26, closing at $197.98. Year-to-date, IBM’s stock has risen by 21.05%.
According to The Wall Street Journal, IBM executive Jack Hergenrother said during a web conference on Monday morning that IBM faces increasingly fierce competition in China, with its infrastructure business shrinking in recent years.
IBM had once viewed China as a research and development hub for global growth, but rising labor costs and compliance risks have diminished the appeal of its Chinese operations in this regard. In 2021, IBM closed a research lab in China that had been in operation for over two decades, focusing on cutting-edge research fields.
The closure of the research department marks a significant turning point in IBM’s 40-year history of development in China. Some affected employees of IBM in China have the option to be relocated to other countries, while others who agree to the departure plan within three weeks may receive severance pay based on their length of service, usually providing compensation up to N+3.
It is evident that due to policy reasons, they can no longer purchase software not made in China. IBM is not the only U.S. tech giant scaling back its operations in China this year.
In May of this year, as the U.S. government sought to impose stricter restrictions on China’s development of advanced AI technology, Microsoft proposed relocating hundreds of employees engaged in cloud computing and artificial intelligence work in China to other countries. There were reports that the White House is considering new regulations requiring Microsoft and other U.S. cloud computing companies to obtain permission before providing advanced AI computing power to Chinese customers. Microsoft’s Asia-Pacific research and development sector employed around 7,000 engineers, the majority located in China.
In September 2023, during a hearing in the U.S. Senate, Microsoft President Brad Smith was asked how much money the company had invested in AI development in China and whether there were any Communist Party members among its local employees. Smith stated that Microsoft carefully ensures that the company does not violate U.S. export control and regulatory requirements.
On August 9, 2023, Microsoft completely shut down the Chinese version of the world’s largest professional social networking platform and job application, LinkedIn, and laid off 716 employees because it “faced intense competition and strong challenges in the macroeconomic environment”. This made Western social media platforms effectively silent in China.
A survey released in April by the American Chamber of Commerce in China revealed that the increasingly tense U.S.-China relationship has been listed as the top commercial challenge faced by American companies operating in China for the fourth consecutive year.
With China’s economy rapidly declining, foreign capital fleeing, and private enterprises closing down, street shops are closing one after another. The middle class has turned into lower middle class, tightening their belts during outings.
Mr. Yang from Fuzhou, Fujian said that after the end of the epidemic lockdown, the economy worsened. Many middle-class individuals have become lower middle-class due to unemployment or pay cuts, coupled with mortgages and car loans to repay. Those who used to travel annually now only travel for the sake of taking photos.
Mr. Tan from Fuzhou mentioned, “Travel is generally dull. I haven’t heard much about traveling abroad, only domestic trips.”
Mr. Liu, a Thai travel agent, stated that Chinese tourists visiting Thailand nowadays are mostly from the lower-middle class. In order to attract tourists from China to travel in Thailand, some Chinese travel agencies even offer luxury seven-day tours in Thailand for 555 yuan.
Despite this, the number of tourist groups visiting Thailand this summer has decreased by more than half compared to the past. Mr. Liu said, “Besides the reduced number of groups, their spending power has been greatly reduced. Today, the tour I led, even for activities like parasailing that were very popular, no one wanted to participate anymore!”
Mr. Liu mentioned that many Chinese tourists he interacted with are freelancers. A small business owner from Wuhan told him that before the epidemic, he could earn one or two thousand yuan a month from his store on Han Zheng Street and was content. But now, not only is he not making money, but he is struggling just to maintain the store. Han Zheng Street used to be a bustling commercial street, but now only a few stores can survive, while the rest have closed down.
Mr. Tan, who used to work in the construction industry in Fuzhou, stated that with the real estate market depressed, he has been unable to find work for over half a year and has been staying at home. “Many people are unable to find jobs. In a state of ‘lying flat,’ apart from essentials like food, everything that can be saved is saved. Unlike before, where people could buy whatever they wanted.” Those who have not returned home yet are “enduring outside, and may only consider returning when they can no longer endure.”
Mr. Zhu from Guangzhou mentioned a woman he knows in her forties who faced dire financial straits three times. “She has no income. When she finds a job, she earns a meager income. Currently, she is bedridden and unable to afford medical care, and is unable to visit the hospital alone. I really worry about her.”
Cuihua, a villager from a village in southwestern Henan, stated that their family is a local impoverished household with two elderly and sick family members and two children attending primary school. Cuihua’s father has late-stage lung cancer, but due to the high cost of surgery, he cannot be reimbursed and they are unable to afford the treatment, so he has refrained from seeking medical care. “In recent years, there have been several elderly people locally who came down with terminal illnesses, unable to afford treatment, and resorted to drinking pesticides or hanging themselves.”
Now, the lower-class people truly see no hope for the future. The song “China Dream” that was once popular, which sang “China’s dream, the dream of a strong country, China’s dream, the dream of a prosperous people, follow the guidance of the dream, step solidly forward toward the great rejuvenation,” is no longer heard on the streets.
People are now singing “I will never come again in the next life,” “Even at this age, things remain the same, being unproductive,” “In life’s journey full of difficulties, I will never return in the next life,” “In this world, there is also beauty, where is it?”
I think if people have faith, they will not be lost. When the inner self is fulfilled, the experience of life will be different.
Thank you for watching “News Perspective”.
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