Major global firms warn of slow China sales
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.
A continued rebound has been limited to a handful of sectors such as dining and luxury goods, driving double-digit China sales growth for the likes of Starbucks, LVMH and Hugo Boss.
But even those bellwethers have stopped short of raising their China outlook, wary of lacklustre economic data, while 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 April-June earnings call last week.
"And 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."
Ireland-based Kerry Group, which supplies ingredients to companies like McDonald's, said its volumes have 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. 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 underscored concerns it is still far from turning a corner.
That is a particular blow for European companies that are major exporters to China, which are already struggling with persistent global price pressures and rising borrowing costs.
"China is stimulating right now and we'll have to see what the success of those efforts are," said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors.
Global automakers are also having to contend with increased competition from rivals in China, which for the first time took a more than 50 percent 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.
The company saw drops of 15.95 percent and 7.1 percent respectively in air and ocean freight volumes in the first half, particularly on routes between China and its two biggest trading partners, the United States and Europe.
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