(The author is a Reuters Breakingviews columnist. The
opinions expressed are her own)
By Wei Gu
HONG KONG, July 12 (Reuters Breakingviews) - Chinese
consumers were supposed to kick in when the country’s export
machine slowed down. But results from some mainland branded
goods groups - from drinks-maker Master Kong to sneaker-producer
DongXiang (3818.HK) - suggest that’s not happening. It’s hard to
see how China’s economy will rebalance towards consumer-led
demand if even staples moulder on the shelves.
It was one thing when high-end luxury brands took a hit.
That’s been happening for some time already. Tiffany & Co
(TIF.N), for instance, cited softening growth from China and
other areas, when it cut its growth expectations for 2012 to as
much as 8 percent from 10 percent previously. Burberry (BRBY.L)
China said on July 11 comparative sales growth dropped to
"mid-teens" percent in the first half from about 20 percent in
the second half of 2011.
But it’s quite another problem when domestic retailers of
more mundane goods like sneakers and cell-phones issue similar
warnings. China’s handset sales declined 6 percent year-on-year
in the first quarter, far worse than the 2 percent drop
globally, according to Gartner. Nokia’s NOK1V.HE China mobile
handset sales plunged 62 percent during that period. Consumers
are even having second thoughts about a more basic necessity:
footwear. China DongXiang Group said revenue from selling
sneakers for the first six months declined by about 29 percent
from a year earlier.
Even basic consumer staples are struggling. Tingyi Holdings
(0322.HK), maker of Master Kong instant noodles and beverages,
reported a 5 percent year-on-year decline in first-quarter
turnover. Master Kong said sales of its sour date juice and
oolong tea drinks fell 22 percent during the quarter. Sluggish
pork demand may hit sales growth of Yurun Food Group (1068.HK),
too, according to analysts, who have ratcheted down their
estimates for the company.
Some of this anecdotal evidence may be self-inflicted, or
brand specific. Some consumer goods groups implemented
aggressive price increases last year. Shoemakers, for instance,
are grappling with too much supply precisely because they
increased production too rapidly. And incentives given to car
and appliances buyers in 2009 may have front-loaded demand.
But the evidence suggests that Chinese consumption is still
highly leveraged to the health of the country’s export sector.
As one slows, so does the other, and with it the notion of a
great rebalancing of the Chinese economy looks increasingly
challenging to realize.
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- China DongXiang Group, a maker of athletic shoes, said on
July 6 that revenue for the first six months is expected to
decline by about 29 percent from the same period in 2011, and
margins are expected to be cut almost by half to 10 percent to
12 percent. The company blamed intense competition and excessive
- Tingyi Holdings Corp 0322.HK, which sells instant noodles
and beverages under the Master Kong brand, reported a 5 percent
decline in its first-quarter turnover. Beverage sales fell 22
percent during the quarter.
- Retail sales in China during the first five months of 2012
rose 14.5 percent year on year, down from 17.1 percent in the
same period a year earlier, according to China’s Commerce
- Reuters: The Big Picture: GROWTH IMPERATIVE
- Reuters: China slowdown hits Burberry sales
- For previous columns by the author, Reuters customers can
click on [GU/]
(Editing by Rob Cox and Katrina Hamlin)
Keywords: BREAKINGVIEWS CHINA CONSUMPTION
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