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China's rescue removes U.S. firms' deals as domestic consumers draw back consumption

May 16, 2023: China is leaving behind pandemic lockdowns. U.S. companies such as Procter & Gamble, Starbucks and MGM Resorts International said the country’s recovery increases overall sales as consumers in their home business watch their wallets.

With its population and swelling middle class, China is desirable for many multinational firms that have seen their U.S. businesses mature.

But its zero-Covid policy, imposing harsh restrictions to stop the spread of the virus, hurt the country’s economy and earnings for the many U.S. firms that sell their goods or services there.

After rolling back the policy in December, China’s economy increased by 4.5% in the initial quarter. U.S. companies report that demand in China is returning, boosting their sales when many U.S. consumers are pulling back their spending.

However, the recovery hasn’t been as swift or dramatic as many investors hoped.

The travel retail segment is taking even longer to bounce back. Most companies are still waiting for more than pre-pandemic sales in China. And Apple’s sales fell in its China region, which includes the mainland, Hong Kong and the nearby self-governing island of Taiwan.

Morgan Stanley analyst Kelly Kim wrote in a research note that the firm’s China consumer team expects the recovery to come in triple stages: a spring break in February through April, summer “revenge spending” in May through July, and a stable recovery starting in August.

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