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

NEW YORK: Global firms from consumer goods giant Unilever to automaker Nissan and machinery maker Caterpillar have warned of slowing earnings in China as the world’s second-largest economy loses its post-pandemic bounce.

The rebound has been limited to a handful of sectors such as travel, dining and luxury goods, driving double-digit China sales growth for the likes of Starbucks, LVMH and Hugo Boss. But many of those bellwethers have stopped short of raising their China outlook, wary of lackluster economic figures.

Consumer goods firms such as Procter & Gamble, L’Oreal and Coca-Cola have taken a cautious stance.

“What we’re seeing is a very cautious consumer in China, a declining property market and reduced export demand,” Unilever finance chief Graeme Pitkethly told an April-June earnings call last week.

“There is high unemployment in China, particularly youth unemployment ... As much as we can tell, we’re at the historical low point in terms of Chinese consumer confidence.” Beijing has rolled out a series of policy measures in recent weeks to shore up the flagging economy, but weak manufacturing data for July on Tuesday shows it is still far from turning a corner.

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

Ireland-based Kerry Group, which supplies ingredients to companies like McDonald’s, said its volumes had increased in China since COVID restrictions ended.

But chief executive Edmond Scanlon cautioned on Wednesday that business would not get back to normal there until 2024.

“Any (stimulus) announcements out of China are more likely to put a floor under growth rather than restimulate growth,” said Jack Janasiewicz, portfolio manager at Natixis in Boston. “It’s not overly surprising that you’re starting to see some of that filter into the earnings backdrop.” Global automakers are having to contend with increased competition from rivals in China, which for the first time took a more than 50% share of the Chinese market in the first half of 2023. Volkswagen cut its full-year sales target last week after sales dipped in China, its top market.

“Unfortunately, our (China) sales outlook is now falling far below our production capacity,” Nissan CEO Makoto Uchida said last week. Earnings recovery in the world’s biggest auto market is likely to take time, he said. Expectations for second-quarter earnings are already low due in part to China’s weakness. Refinitiv I/B/E/S data show US and European companies are expected to report their worst quarterly results in years.

The short-lived bounce in economic activity after China lifted its long COVID lockdowns also highlights poor global demand, DHL Group, one of the world’s biggest shippers, said on Tuesday.