Consumer spending in China is not picking up yet, 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 recovery rate to improve, Lei Xu, chief executive officer and chief executive officer of e-commerce giant JD.com, said in an earnings call Thursday.

He said it will take time for the government’s stimulus measures to show in consumer incomes and confidence.

JD on Thursday reported a 7.1% rise in fourth-quarter net sales to 295.45 billion yuan ($42.8 billion). That’s below expectations for 296.2 billion yuan, according to Reuters.

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

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

Ma expects margins to fall to around 1% due to competition in China’s consumer market. He pointed out that JD did not indicate on Thursday that it would end subsidies – after launching a 10 billion yuan subsidy program earlier this year.

Official data released this week showed China’s consumer prices rose a muted 1% in February compared with a year ago.

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

Covid curbs and a slump in real estate dragged down China’s economy last year, weighing heavily on consumer and business sentiment.

Beijing ended its Covid control at the end of last year. Many consumers rushed to shop and travel during the 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 through early February, Zhang said during a quarterly earnings call in February.

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

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

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

CEO Bjørn Gulden told analysts in an earnings call this week that he doesn’t expect the Chinese market to turn around this year and be a major contributor to sales.

In the medium term, however, he expects that China will once again be a growth driver 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 said afterward that increased spending 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 will be released on Wednesday.

Chinese consumer e-commerce Meituan and Pinduoduo have not yet said when they will release earnings for the latest quarter.