As private consumption in China shrank, global consumer goods companies’ performance was turned on. Companies that have seen their profits plummet due to poor performance in China, from cosmetics to beer and automobiles, are continuing to line up.
According to the Financial Times on Monday (local time), WPP, a London-based advertising conglomerate, reported sluggish earnings in the second quarter, saying, “China’s sales fell by a quarter,” adding, “Chinese consumers are becoming wary and the outlook is not good.” WPP is not the only company whose profit plunged due to weak demand in China. In the first half of this year, a large number of global consumer goods companies cited weak second-quarter earnings as the reason for their weak performance in China. L’Oreal, a global cosmetics company, estimated that sales growth in China fell by 2-3 percent in the first half of this year. Porsche, a subsidiary of Volkswagen, also said its sales in China fell by one-third year-on-year from January to June this year.
China’s private consumption sharply shrank due to the slump in the real estate market that began in late 2021. With most individuals investing their assets in real estate, the plunge in housing prices has caused them to lose confidence in their future assets as well as demand for consumer goods. The contraction in private consumption is also confirmed by economic indicators. According to market researcher Peach Ratings, the growth rate of China’s restaurant industry slowed to less than 8% in the first half of this year for the first time since 2010. “There is a clear move to reduce non-essential spending or shift to cost-effective products due to the uncertainty surrounding the outlook for disposable income and further shrinking of household assets caused by falling housing prices,” Fitch analysts said. “This trend is expanding beyond eating out to the entire ‘major discretionary category’ including clothing, cosmetics and jewelry.”
SOPHIA KIM
US ASIA JOURNAL
