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Workers in protective suits move equipment for a makeshift nucleic acid testing site to the next residential area after wrapping up the screening at a compound, amid the coronavirus disease outbreak in Shanghai, China, on May 14 2022. Picture: CNSPHOTOO via REUTERS
Workers in protective suits move equipment for a makeshift nucleic acid testing site to the next residential area after wrapping up the screening at a compound, amid the coronavirus disease outbreak in Shanghai, China, on May 14 2022. Picture: CNSPHOTOO via REUTERS

Hong Kong/San Francisco/Shanghai — Two months into harsh Covid-19 lockdowns that have choked global supply chains, China’s economy is staggering back to its feet, but businesses from retailers to chipmakers are warning of slow sales as consumers in the country slam the brakes on spending.

Car sales in the world’s largest vehicle market have slowed dramatically, gamers are buying fewer consoles, and people are unwilling to replace their existing smartphones, laptops and TVs, as prolonged Covid-19 curbs crimp spending power and put more people out of jobs.

“The current China lockdowns ... has implications to both supply and demand,” said Colette Kress, CFO at US chipmaker Nvidia, which forecast on Thursday a $400m hit to gaming sales from China’s stringent coronavirus restrictions.

“You have very large cities that are in full lockdown, focusing really on other important things for the citizens there. So it’s impacting our demand.”

In line with China’s zero-Covid approach, Beijing, with its 22-million population, has clamped down on workplace attendance. Shanghai, the country’s commercial hub, and numerous other giant cities are also shackled by partial lockdowns or other curbs.

Retail sales in April shrank 11.1% year on year, after falling 3.5% in March. UBS and JPMorgan lowered their full-year GDP growth forecasts for China to 3% and 3.7% respectively earlier this week.

Premier Li Keqiang said on Wednesday that China would strive to achieve reasonable economic growth in the second quarter and stem rising unemployment. The cabinet also announced broader tax credit rebates and postponed social security payments and loan repayments to support the world’s second-largest economy.

E-commerce group JD.com said last week the Covid-19 situation was far different than what China had previously experienced, when outbreaks were limited to smaller areas and had boosted online shopping.

“In April, the order cancellation rate was significantly higher than last year due to logistical disruptions. There was an improvement in May, but it was still higher than a year earlier,” JD.com CEO Xu Lei said.

“Consumers are facing loss in income and confidence, and overall consumption is sluggish.”

Vehicle sales in China have faltered after years of blistering growth, and global carmakers especially have taken a hard knock.

Sales of Tesla in China — where the company has struggled to get production back to pre-pandemic levels — was nearly wiped out in April.

And while retail car sales for the first three weeks of May rose 34% from the same period in April, they were 16% lower than a year earlier, the China Passenger Car Association said on Wednesday and called for more government support.

The industry body said a drop in income related to Covid-19 was depressing sales, even in parts of China that are not locked down.

Lenovo, the world’s largest PC maker, reported on Thursday its slowest quarterly revenue growth in seven quarters as demand for its personal computers waned after two years of pandemic-driven demand.

China’s PC shipments, including desktop, notebook and work station shipments, fell 1% in the January-March period, ending the growth streak of the last seven quarters, market data firm Canalys said on Thursday.

Tencent, China’s most valuable company, posted its worst quarterly performance since it went public in 2004, blaming cuts in advertising spending by consumer, e-commerce and travel businesses.

Apple supplier Foxconn warned that smartphone demand was slipping in China, and the country, just recently a mecca for luxury goods makers such as LVMH, has seen luxury sales falter.

“Even when China comes out of isolation, the bounce back will not be as quick and as immediate as we have seen in Europe and the United States,” Johann Rupert, chair of Swiss firm Richemont, said last week.

Reuters

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