Companies around the world are starting to cut prices and costs and scale back activity in China, as the world's second-biggest economy continues to flag despite Beijing's efforts to turn things around.
Big names including Hermes (HRMS.PA), L'Oreal (OREP.PA), Coca-Cola (KO.N), United Airlines (UAL.O), Unilever (ULVR.L) and Mercedes (MBGn.DE) said Chinese customers are curbing spending as a property crisis drags on and youth unemployment stays high.
Some are already shifting their China strategies.
French carbon graphite maker Mersen (CBLP.PA) said last week it would close a factory making power transmission products in China because it cannot compete with local rivals.
International food companies such as Danone (DANO.PA) and Nestle (NESN.S) have meanwhile deepened price cuts or are seeking to boost online shopping volumes.
Coca-Cola CEO James Quincey said on an Oct. 23 earning call that the operating environment in China remained challenging.
"The economy is kind of not taking off," he told investors.
The Chinese government has promised more help, but the scope and timing of further stimulus is uncertain, and investors are so far not convinced that its efforts will spur the $18.6 trillion economy.
Some companies are still investing despite the downturn.
Birkin handbag maker Hermes is compensating for lower traffic in China with higher average basket values, selling jewellery, leather goods and ready-to-wear for men and women.
After opening a store in Shenzhen last week, Hermes plans a second opening in Shenyang in December and a flagship outlet in Beijing next year.
But for others, business in China has changed for the long term.
"We used to fly, I think, roughly 10 flights a day to China, and I think those days are gone," United Airlines CEO Scott Kirby said.
The company now has up to three flights a day from Los Angeles to Shanghai, and does not expect that to change soon.
"It's just a completely different world," Kirby added.
THIRD-QUARTER GLOOM
The third-quarter earnings season, now in full swing, has seen a string of company executives describe a troubled Chinese business environment.
Ermenegildo Zegna, chairman and CEO of the Italian luxury group of the same name (JN0.F), said he expects "challenging" times in China to continue into at least early 2025.
The luxury goods sector has borne the brunt of the downturn, as economic uncertainty weighs on middle-class shoppers and makes even China's wealthy more reluctant to spend.
LVMH (LVMH.PA), whose Chinese sales helped make it Europe's biggest company by market capitalisation until last year, said consumer confidence in the country was at an all-time low.
With China's massive Singles' Day shopping event underway, many local vendors expect flat or at best tepid sales growth, reporting that consumers are still very much dispirited by the country's economic troubles.
Heavy industry has also had a rough ride that it expects to last a while longer.
"So far, I'd like to stress, there is no recovery visible nor in sight," (SCHP.S) CEO Silvio Napoli said after Swiss elevator and escalator maker Schindler reported quarterly revenue on Oct. 17.
Having returned from a trip to China earlier this month, Napoli said he had not seen any signs the market had reached a bottom. China accounted for 15% of Schindler's revenue last year.
The CEO said he did not consider the stimulus measures to be the "bazooka" the economy needed, but that there might be more visibility in February when the company releases full-year results.
WAITING GAME
It is still early in earnings season, but expectations for companies with Chinese exposure were already low.
And there are more potential downbeat assessments to come, as only a small number of the hundreds of companies on the pan-European STOXX 600 (.STOXX) and U.S. S&P 500 indices (.SPX) have so far reported.
"We have heard from a lot of companies about it being much more of a cyclical slowdown than something that is structural, so it's waiting for that confidence to return, waiting for that stimulus to really kick in," said Gillian Diesen, portfolio manager at Pictet Asset Management in Geneva.
That will depend on Chinese government stimulus feeding through to households and encouraging them to splash cash again.
"The government has clearly shown they understand the country has several large problems," said Eric Clark, portfolio manager of the Rational Dynamic Brands Fund. "Thus far, their approach to trying to fix them seems akin to putting a few band-aids on catastrophic wounds."
Companies face other potential headwinds, too.
European carmakers and white goods manufacturers like Electrolux (ELUXb.ST) are struggling to compete in their home markets with Chinese rivals who are able to make and sell goods more cheaply.
Donald Trump has also threatened blanket 60% import tariffs on Chinese goods if he wins Nov. 5's U.S. presidential election, potentially putting huge pressure on China's industrial base.
This week, Brussels will impose duties of up to 35.3% on China-made electric vehicles, ratcheting up a trade dispute with Beijing which has launched its own retaliatory steps.
