Consumer spending in China not yet recovering, companies say

BEIJING — China has yet to see a strong rebound in consumer spending, according to major companies.

Consumer spending is recovering in an unbalanced way, meaning it will likely take until the second half of the year for the speed of recovery to improve, said Lei Xu, CEO and executive director of the e-commerce giant. JD.com, in an earnings release. call Thursday.

He said it will take time for government stimulus measures to trickle down to incomes and consumer confidence.

JD on Thursday reported a 7.1% increase in net revenue in the fourth quarter to 295.45 billion yuan ($42.8 billion). That’s below expectations of 296.2 billion yuan, according to Reuters.

JD shares fell more than 11% in Hong Kong trading on Friday. The company’s U.S.-listed shares closed down more than 11% overnight.

Many investors were disappointed with JD’s 2.7% net margin, Grow Investment Group chief investment officer William Ma said Friday on CNBC’s “Squawk Box Asia.”

Ma expects margins to drop to around 1% due to competition in the consumer market in China. He pointed out that JD had not indicated on Thursday that it would stop subsidies – after launching a 10 billion yuan subsidy program earlier this year.

Official data released this week showed consumer prices in China rose 1% in February from a year ago.

The deeper-than-expected weakness in the consumer price index “casts doubt on the strength of the recovery in domestic demand in the household sector,” Zhiwei Zhang, president of Pinpoint Asset Management, said in a note. . “It’s puzzling to me because it contradicts other data points that suggest the recovery in domestic demand is quite strong.”

Covid controls and a housing slump dragged down China’s economy last year, weighing heavily on consumer and business sentiment.

Beijing ended its Covid checks late last year. Many consumers rushed to shop and travel during Lunar New Year in late January.

But JD is not alone. Comments from Alibaba CEO Daniel Zhang last month also pointed to a tepid recovery in China’s consumer market.

Online sales remained weak this year until early February, Zhang said on a quarterly earnings conference call in February.

However, he said some categories started seeing a recovery last month. Companies want to work hard to recover from the losses of the past three years, Zhang said.

Alibaba shares traded down more than 3% on Friday in Hong Kong.

Non-Chinese companies such as Adidas are also cautious about the near-term outlook for Chinese consumer spending.

CEO Bjorn Gulden told analysts on an earnings call this week that he doesn’t expect the Chinese market to recover this year and be a huge contributor to sales.

In the medium term, however, he expects China to once again become a growth engine for the company.

Adidas’ sales in Greater China fell 36% last year on a currency-neutral basis to 3.18 billion euros ($3.37 billion).

On Sunday, China announced a relatively conservative economic growth target of around 5% for the year. Officials then said that increasing consumption was a priority and that they expected it to be a driver of overall growth. But they noted that the recovery in the sector continues to face constraints.

Official retail sales data for January and February are due out on Wednesday.

Chinese consumer e-commerce Meituan and Pinduoduo have yet to say when they will report their results for the latest quarter.