By Trefor Moss, Sharon Terlep and Jennifer Maloney
China is bolstering American firms grappling with a surge in
Covid-19 cases that is tempering demand in the U.S. and Europe.
Companies including Coca-Cola Co., General Motors Co. and Estée
Lauder Cos. said they got a lift in the September quarter from
Chinese consumers who spent big on soda, perfume, SUVs and other
The latest results extend a trend that began earlier in the year
as China recovered from the virus. But the Asian country's return
to business as usual has taken on added importance for American
firms now that new cases are soaring elsewhere. The U.S. recorded
more than 102,800 new cases Wednesday. And Germany, France and the
U.K. all issued new restrictions to help curb surging
"This was another extraordinary quarter for Chinese consumer
consumption, " Estee Lauder Chief Executive Fabrizio Freda said on
the company's quarterly earnings call on Monday. While the
cosmetics giant's global sales fell 9% from the same period a year
ago, its China sales increased 28% to 30%, Mr. Freda said.
Business and consumer activity inside China has returned to
pre-pandemic patterns in many ways. Cities are bustling with crowds
of office workers and traffic on streets. Restaurants, shopping
malls and gyms are packed. Movie theaters are open. Domestic air
travel in August inched closer to levels not seen since before the
Chinese retail sales grew in August for the first time in 2020,
increasing 0.5% year-over-year, according to the National Bureau of
Statistics. The recovery accelerated in September, with retail
sales up 3.3% year-over-year. Almost all of China's main consumer
segments are now growing again, with the exception of petroleum
products and catering.
Coca-Cola said it expects to see growth this year in China, even
as its global sales continue to decline because of the closures of
restaurants, bars, movie theaters and sports stadiums elsewhere
around the world.
Chinese consumers are "more or less back to where they were"
before the pandemic started, though away-from-home sales aren't
quite back to where they were, Coke's finance chief, John Murphy,
said in an interview in October. "They have managed from March
through June to contain and pretty much eliminate the
Coke reported revenue of $8.65 billion in the third quarter, a
decline of 9% from a year earlier. The company's case volume fell
in the quarter by 6% in North America and 4% globally. Coke didn't
disclose sales numbers for China but said its case volume of
carbonated soft drinks there rose by a mid single-digit
Estee Lauder said Chinese shoppers ramped up spending in stores
and online, snapping up pricey skin creams, perfumes and other
high-end beauty products. They also returned in big numbers to
domestic travel, which fueled sales of Estee Lauder products at
airports. Before the pandemic, travel-retail sales had been a major
growth driver for Estee Lauder and other makers of luxury products,
compensating for the decline of U.S. shopping malls. Those sales
ground to a halt this spring.
The company saw "tremendous growth" in the southern island
province of Hainan, Mr. Freda said. The region is aided by relaxed
duty-free rules. In June, authorities more than tripled the annual
limit on duty-free purchases there and widened the program to
include more products such as electronics.
L'Oreal SA reported a similar surge in demand: Its China sales
increased 28% in the third quarter year-over-year, although its
global sales fell 2%.
China also rode to the struggling automotive sector's
Cummins Inc. of Columbus, Ind., which makes truck engines, said
its China revenue surged 46% year-over-year in the third quarter,
whereas its global revenue dropped 11%. Chinese "demand has been at
record levels for the last six months," said Chief Financial
Officer Mark Smith, as local governments fund heavy-equipment
purchases as part of infrastructure programs being rolled out
nationally to stimulate the economy.
With the recovery in premium-car sales outpacing that of the
broader auto market in China, Daimler AG reported 24% yearly sales
growth, and record unit sales, for Mercedes-Benz in the September
quarter. That compared with an 8% decline globally.
GM reported a 12% yearly increase in China sales in the
September quarter, compared with a 10% decline in U.S. sales. At
Ford Motor Co., China sales increased 22% year-over-year but
declined 5% globally.
Japanese auto makers also have gotten a lift from China in
recent months. On Friday, both Toyota Motor Corp. and Honda Motor
Co. more than doubled their profit forecasts for the year ending
March 2021, saying rising demand in China is helping offset weaker
Pharmacy giant Walgreens Boots Alliance Inc., with the most of
its business in the U.S. and Europe, got a boost from China. As the
company accelerates store closings in the U.S., a two-year-old
joint venture in China is growing fast, executives said last
Walgreens in 2018 acquired a 40% majority stake of Chinese
pharmacy chain Sinopharm Holding GuoDa Drugstores Co. The chain has
grown to 7,500 stores from 3,600 in that time and continues to
expand amid the pandemic.
China is also buying more U.S. grain, meat and other farm goods,
which is helping to revive the fortunes of American agricultural
companies. Archer Daniels Midland Co. and Bunge Ltd. both said
higher commodities exports helped fuel rising profits during their
most recent quarters. "China has come roaring back from the
pandemic," said Juan Luciano, chief executive of ADM, on a
conference call last week. "Their recovery has surprised
American companies' increasing reliance on growth in China
brings risks, particularly in light of acrimony between the two
nations and the potential for Beijing to assert its influence on
business operations in the country. This week, Chinese regulators
halted financial-technology firm Ant Group Co.'s plans to go public
in what would have been the world's largest listing.
Some American firms hope the outcome of the U.S. presidential
election will restore stability to the U.S.-China relationship
after more than two years of tensions, ensuring that growth doesn't
fall victim to geopolitics.
"The business community is looking for certainty and
predictability," said Matthew Margulies, vice president at the
U.S.-China Business Council in Beijing, a quarter of whose members
postponed planned investments in China over the past year, mainly
because of the pandemic and worsening U.S.-China relations.
"There's been a lot of volatility in the bilateral relationship,
which makes long-term planning difficult."
U.S.-China trade tensions will persist whoever secures the
presidency, said Bala Ramasamy, professor of economics at the China
Europe International Business School in Shanghai. "The U.S. will
continue to demand that China opens up its market to American goods
and services as well as a more level playing field for American
companies," he said.
Write to Trefor Moss at Trefor.Moss@wsj.com, Sharon Terlep at
email@example.com and Jennifer Maloney at
(END) Dow Jones Newswires
November 06, 2020 08:51 ET (13:51 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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