Multinationals face leaner times as China’s growth slows

Multinationals are increasingly concerned about the state of China’s economy: China has not seen the economic turnaround post-Covid that many expected, with weak demand and sluggish growth pushing down consumer confidence. Amid the economic slowing, multinational companies are seeing sales decline as consumers cut back on spending and turn toward domestic brands — a trend executives believe will continue for the foreseeable future.

Sales are falling: According to advertising giant WPP, sales in the Chinese market have dropped nearly one-quarter in the last three months, reflecting the contraction of consumer appetite amid a sluggish economy. Foreign carmakers in particular have seen significant declines in sales, as consumer preference shifts toward EVs and away from the luxury auto market. Domestic competition is also playing a factor, as more and more Chinese brands outcompete multinationals in the Chinese market.

Distressed real estate markets are partly to blame: The heavily indebted Chinese real estate sector has seen growth slow since late 2021. With much of households’ wealth tied up in real estate, the downturn in the market has had a significant impact on consumer spending. “Uncertainty surrounding disposable income prospects, combined with further shrinkage of household wealth due to falling housing prices has led to a reduction in non-essential expenditure or a shift towards value-for-money product,” impacting not just restaurants but also other discretionary categories like “clothing, cosmetics, and gold and silver jewelry,” Fitch Ratings analysts say in a recent research note.

Still, a slow turnaround isn’t enough of a reason to turn one’s back on what is (arguably) the largest economy in the world, executives point out. “Even at current growth rates China still accounts for almost one-third of the world’s annual growth,” CEO of Yum China Joey Wat tells the Financial Times. And while lower sales hurt companies’ bottom lines in the present period, executives believe that the country’s “long-term fundamentals are still in place,” Anheuser-Busch InBev CEO Michel Doukeris tells the salmon-colored paper. Yet, despite a generally positive outlook, according to Wat “business is tough right now.”

MARKETS THIS MORNING-

Asian markets are mostly in the green this morning after one particularly volatile week that saw major sell-offs then sharp rebounds. The Kospi is looking at gains of 0.9%, while Hong Kong’s Hang Seng is down 0.5% at dispatch time. The Nikkei is closed today as the Japanese observe Mountain Day.

MEANWHILE- Futures for US indexes are down this morning as investors await inflation data due on Wednesday.

THE CLOSING BELL-

The DFM fell 0.02% last Friday on turnover of AED 243.4 mn. The index is up 3.3% YTD.

In the green: Al Ramz Corporation Investment and Development (+5.3%), Depa Limited (+5.3%) and Commercial Bank of Dubai (+2.5%).

In the red: Dubai Refreshment Company (-9.9%), National International Holding Company (-9.9%) and Emirates Islamic Bank (-7.9%).

Over on the ADX, rose 0.6% on turnover of 1.09 bn. Meanwhile Nasdaq Dubai fell 0.2%.