International companies have begun to reduce prices and costs and reduce their activity in China, amid the continued faltering of the world’s second largest economy, despite Beijing’s efforts to regain momentum.
Major companies, including Ermes, L’Oreal, Coca-Cola, Unilever, Unilever and Mercedes, said that Chinese customers are reducing spending in light of the continuing real estate crisis and high unemployment rates among young people.
Some companies have already begun to adjust their strategies in the Chinese market.
Tough competition
The French company Mersenne, a manufacturer of carbon graphite, said last week that it would close a factory for electricity transmission products in China due to the difficulty of competing with local companies.
At the same time, global food companies such as Danone and Nestlé are promoting price cuts or increasing online sales.
Coca-Cola CEO James Quincey said in conjunction with the earnings announcement on October 23 that the operating environment in China remains difficult, and added to investors: “It does not appear that the economy will improve.”
The Chinese government pledges to provide further support, but the scope of additional stimulus measures and the timing of their implementation are not yet clear, and the government has not yet convinced investors that its efforts will boost the $18.6 trillion economy.
Despite the slowdown, some companies are still making investments.
Hermes, the handbag manufacturer, is facing a decline in the number of buyers, but it is compensating for this by seeking to increase the amount that each customer spends on average during each purchase. The company also sells jewelry, leather products, and ready-to-wear clothing for men and women.
After opening a store in Shenzhen last week, Hermes plans to open another store in Shenyang next December and a flagship store in Beijing next year.
But others believe that the business environment in China has changed in ways that will last for a long time.
Days are gone
United Airlines CEO Scott Kirby said: “We used to operate approximately 10 flights a day to China, but I think those days are over.”
The company now operates up to 3 flights a day from Los Angeles to Shanghai and does not expect this situation to change soon. “The situation has completely changed,” Kirby said.
During the third quarter results announcement season, which is currently ongoing, company executives focus on talking about the business environment in China and describe it as difficult.
Ermenegildo Zegna, Chairman and CEO of the Italian luxury goods group that bears the same name, expected the “difficult” situation in China to continue until at least early 2025.
LVMH, whose sales in China helped make it the largest European company by market value until last year, said that consumer confidence in the country had reached its lowest levels ever.
