Chinese Consumers Closing Wallets...Global Companies Say "No China Boom"

Est?e Lauder, Qualcomm, etc. "China's Recovery More Gradual Than Expected... No Signs of Rebound"
Tourism Demand Increased During Labor Day Holiday but Spending Remains Flat

"There was no China boom."

This is what major global companies said after announcing their first-quarter earnings this year when evaluating the effect of China's reopening (economic reopening). They stated that although the Chinese economy has revived since the lifting of COVID-19 lockdowns at the end of last year, the rebound has been limited, and the sustainability of this recovery is uncertain, making it difficult to expect a trickle-down effect.

[Image source=Yonhap News]

On the 8th, according to major foreign media, leading companies in the US and Europe predicted that China's economic recovery this year would be more gradual than expected.

Fabrizio Freda, CEO of Est?e Lauder, said during a conference call held after the earnings announcement on the 3rd, "The recovery in Asian travel is more focused on its form rather than being substantial, showing greater volatility than we expected and appearing more gradual than what we experienced in other markets," adding that they are facing serious headwinds such as inventory issues.

Est?e Lauder reported that its sales for January to March (Q3 of the fiscal year) were $3.75 billion, and adjusted earnings per share (EPS) were $0.47, down 12% and 74% respectively compared to the same period last year. The decline was largely due to decreased duty-free sales in Hainan, China, and South Korea. In particular, although the number of visitors to Hainan duty-free shops increased compared to a year ago, it did not translate into strong sales. Est?e Lauder expects annual sales for the fiscal year ending in June to decrease by 12%.

Qualcomm and Starbucks also cast doubt on optimistic forecasts for the Chinese economy. Qualcomm CEO Cristiano Amon said that sales from January to March this year fell 17% year-on-year, and net profit decreased by 42%, stating, "There was an overall expectation that the Chinese market would rebound after reopening, but signs of this have not yet appeared." Starbucks, which has aggressively expanded its business in China, also forecast that its sales growth in China would slow from the second quarter of this year.

The global travel industry is also disappointed by the slower-than-expected pace of China's economic recovery. Christopher Nassetta, CEO of global hotel chain Hilton, said, "China will not contribute as much to our performance this year as I would like." Finnish airline Finnair stated, "The recovery in China started at a slower pace than many expected," and American consumer goods company Colgate-Palmolive evaluated, "We have not yet seen a recovery in the retail travel business."

Some companies, such as French luxury goods firm Louis Vuitton Mo?t Hennessy (LVMH), have benefited from the China-specific effects, but analysts say this is insufficient to spread warmth throughout global companies and the overall economy.

Chinese consumer indicators also support their outlook. According to Bloomberg, during this year’s Labor Day holiday (April 29 to May 3), Chinese tourism demand increased by 19.1% compared to pre-pandemic 2019. However, spending rose by only 0.7%. Analysts interpret this as a pattern where consumers are increasing spending on services such as travel and dining due to reopening, while demand for goods is actually decreasing. The Caixin Manufacturing Purchasing Managers’ Index (PMI), a leading economic indicator, also fell from 50 in March to 49.5 in April, entering a contraction phase (below 50).

Goldman Sachs stated, "Following China’s reopening, the simplest phase of consumption recovery, driven by the release of some pent-up demand including mobility, has been completed," adding, "The next phase depends on income growth and improved consumer sentiment to enable a sustainable recovery."

This content was produced with the assistance of AI translation services.