China’s “new normal” due to covid-19 poses a challenge to Western multinationals’ expectations that the world’s second-largest economy will recover quickly. Large groups from Apple to General Electric have seen their first-quarter revenue dwindle as new lockdowns paralyzed factories and distribution networks and hurt retail sales. Many companies downplay the impact as temporary. That is overly optimistic.
Estée Lauder CFO Tracey Travis is probably not alone in claiming that China could reopen for the domestic market in mid-May, with pent-up demand helping to recover lost sales of late. The US cosmetics group’s revenue in Asia fell for the first time in two years in the January-March quarter.
This was mainly due to China, where the company generates 36% of total sales, according to calculations by analysts at Jefferies. Remy Cointreau insists its growth potential for the year is unchanged, despite the French premium spirits maker’s revenue falling in the first quarter, weighed down by a double-digit percentage decline in China.
The idea is based on past experience. Foreign companies in China have benefited from the country’s rapid recovery from the first wave of the pandemic. Authorities also minimized economic damage by adopting targeted restrictions, especially in the key production and logistics hub of Shanghai. Both the American and European Chambers of Commerce in China said that most of their affiliated companies remained profitable in 2020 and 2021.
But the omicron outbreak that paralyzed Shanghai in March caused a profound change in Beijing’s strategy. Authorities have introduced regular mass testing in nearly a dozen of the country’s major cities by GDP, even if no new cases are recorded. Residents have to show a negative test result as often as every two days in order to enter public places. Cheap test kits will allow more cities to adopt the same method.
In theory, this will prevent a new outbreak like the one in Shanghai. But it also makes reopening much more difficult. The harsh treatment of those who catch the virus may deter people from traveling and spending.
He knows in depth all the sides of the coin.
China’s 400 million middle-class consumers make the country an essential growth market for companies like Italian luxury goods maker Salvatore Ferragamo, which said on Tuesday it expects to double sales in four to five years from 2021. is to expand online sales and invest more in marketing, but even then covid-19 restrictions can make deliveries difficult. The alternative is to cultivate new consumers in other countries. At the moment, companies attach great importance to the rapid recovery of China.
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