Businesses say consumer spending in China has yet to pick up

BEIJING – China has not yet seen a strong recovery in consumer spending, according to major companies.

Consumer spending is recovering in an unbalanced way, which means it will likely take until the second half of the year for the speed of recovery to improve, Li Xu, CEO and CEO of e-commerce giant JD.com, said in its earnings report. Call Thursday.

He said it would take some time for the government’s stimulus measures to show in consumer income and confidence.

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

JD shares fell more than 11% in Friday trading in Hong Kong. Shares of the US-listed company closed down more than 11% 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 drop to around 1% due to competition in the consumer market in China. He noted that Dinar on Thursday did not indicate a cessation of 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 compared to a year ago.

The larger-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’s inconsistent with other data points that suggest the recovery in domestic demand is very strong.”

Covid controls and a real estate slump dragged China’s economy down last year, hitting consumer and business confidence hard.

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

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

Zhang said during a quarterly earnings call in February that online sales remained weak this year through early February.

However, Zhang said that some categories began to see a rebound last month, and companies want to work hard to recover from the losses of the past three years.

Alibaba shares were trading 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 turn around this year and be a significant contributor to sales.

However, in the medium term he expects China to be a growth engine for the company again.

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 later said that boosting consumption was a priority and that they expected it to be a driver of overall growth. However, they noted that recovery in the sector still faces constraints.

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

Chinese consumer e-commerce company Meituan and Pinduoduo have yet to say when they will release fourth-quarter earnings.