China: consumer confidence crisis will have far-reaching effects

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

When a top consumer stock suddenly plunges to a historic low, it sends a powerful signal. Shares of ecommerce group JD.com fell 12 per cent on Friday. On the same day, official data showed China teetering on the edge of deflation. Those figures tell a gloomy story for global investors. 

Consumer price inflation was flat in September, missing expectations for an increase. Factory-gate prices fell 2.5 per cent, marking the 12th straight month of declines. That intensifies worries about weak demand.

Hopes that Chinese shoppers would embark on a post-lockdown revenge spending spree had already been dashed. Despite Covid-19 curbs having ended at the close of last year, that rebound has not materialised. 

China’s Golden Week holiday has historically been a peak season for local spending. Data from this year’s holiday — the eight days to October 6 — shows a gloomy picture. Travel and spending data missed market expectations and government forecasts. They remain well below pre-pandemic levels. Even everyday spending such as movie tickets has been slashed, with sales falling 40 per cent from 2019. 

Demand for overseas travel may be particularly hit. A weak renminbi adds to international travel expenses, meaning fewer Chinese tourists overseas and less spending. European stocks, exposed to the Chinese market as well as tourist spending, will be affected by this trend.

Shares of the largest ecommerce groups Alibaba and JD.com trade at around 9 times forward earnings, a small fraction of global peers. Slashing prices and offering discount promotions have until now been effective in delivering a quick boost to their sales. But this year, even that strategy has failed to bring shoppers back. The long-running growth in international companies’ sales to an expanding Chinese middle-class is also under threat.

JD.com’s stock moves offer a hint of what to expect in a wider range of sectors in the months to come.