Fears that China’s post-pandemic recovery has stalled have yet to trickle down to Chinese consumers.
First-quarter earnings results from consumer-facing companies operating in China suggest that the spending hike that companies have been waiting for has finally arrived, as Chinese shoppers settle into a new normal.
Chinese retail sales have made a gradual comeback, growing steadily over the past five months. April retail sales jumped 18.4% year-on-year, up from November’s 5.9% decline, according to China’s National Bureau of Statistics. Consumer confidence has also recovered from its fall lows. Gross domestic product (GDP) for the first quarter of 2023 rose 4.5%, above economists’ expectations.
Indeed, for some Western retailers, the quarter marked a strong reacceleration in Chinese sales.
Q1 results from (ticker: LULU), for example, showed Chinese revenue grew 79% during the period, helping the company beat Wall Street expectations and prepare for the share for its largest percentage increase since 2019.
is not the only one to register better performances in China.
(CPRI) all saw Chinese sales jump in the quarter.
“China, with the reopening, we see a lot of strength there, and quite frankly, we’re doing a little bit better than we even expected, which is a good sign,” said the CEO of Capri, John Idol, on a call with investors.
Restaurants were also enjoying the benefits of more active consumers, with
(MCD) reporting positive same-store sales in their most recent quarters. There could be even more potential if the government adopts a stimulus package to support China’s struggling property market.
Still, that doesn’t mean retailers are in the clear.
“China’s reopening is boosting out-of-home spending, which will help domestic and global businesses gain exposure to this market,” wrote a group of analysts from Moody’s Investors Service. “However, the rebound may not be as strong or durable as some predict.”
Some Chinese consumer-facing companies are already feeling the pinch. While US retailers saw their sales jump in the first quarter of the year, Chinese e-commerce companies saw more mixed results.
(BABA) revenue fell 2.6% last quarter and
(JD) sales fell 1.4%. Shares of these companies have also struggled: JD stock has fallen almost 40% this year, while
the stock is down 4%. E-commerce business
now known as PDD Holdings (PDD), is down 15%.
The past few weeks have been volatile for Chinese equities. that of Hong Kong
Hang Seng Index
(HSI) briefly slipped into bearish territory in May, following a series of worse than expected economic indicators that reaffirmed fears that the current recovery may be running out of steam. China’s manufacturing purchasing managers’ index – a key indicator of factory output – has contracted for the second month in a row, and the country is also facing a new variant of Covid-19 that threatens to make derail the reopening.
“Clearly, the tailwind of China’s reopening post-pandemic is faltering,” Louis Navellier, Navellier’s chief investment officer, wrote in an email.
Investors will receive a fresh batch of economic data next week that will help markets determine the risk level of the recovery. On Wednesday, China released import and export figures for the month of May. Trade has long been a crucial part of China’s economic growth, which in turn has helped fuel global trade. Economists expect Chinese exports to have risen 2% in May from a year earlier, according to data aggregator FactSet, which would represent a marked deceleration from the 8.5% increase. % of April.
With trade and manufacturing slowing, Chinese consumers are keeping the fragile recovery afloat. Hoping they are good swimmers.
Write to Sabrina Escobar at email@example.com