Slack domestic demand causes shares of Chinese companies to drop

A supermarket in Ningxia Hui autonomous region
==============================================================

While Chinese authorities have repeatedly called for stimulating domestic demand, deeming economic transformation as their most important mission, a weak economic environment and overdraft consumption driven by the government's stimulus policies has caused the shares of China's consumer goods industries listed in Hong Kong and the United States to drop to new lows.

In recent years, international investors have been optimistic about China's domestic market. Stocks in retail distribution, catering and restaurants, daily-use commodities and tourism, which are driven by domestic demand, have been highly popular among investors. However, such shares have weakened of late.

Suning Appliance, one of the largest privately owned electrical appliance retailers in China, predicted on July 16 that its profits in the first half of this year would drop 20% over the same period of last year.

The company's shares then fell 20% over several trading days.

Other home appliance and electronics companies have also put up weak performances. BaWang International (Group)'s share price dropped to HK$4.5 (US$0.58), a record low since it went public in Hong Kong.

While China's tourism industry has developed rapidly in recent years, its largest tourism website Ctrip, which is listed in the United States, reported on July 25 that its net profit in Q 2 dropped 55% year-on-year. The news caused the company's shares to fall 12% to US$11.13, a record low in 52 weeks.

With a population of 1.3 billion people, China's catering and restaurant industry shares have performed well in the past. These shares are also declining now.

Additionally, the profitability of international food giants in China was weaker than expected. Earlier,
Yum! Brands's Q2 financial statement showed a drop of 4% in its profits from the Chinese market.

The owner of KFC and Pizza Hut attributed this to the 13% rise in the salaries of its Chinese employees, while the prices of its products rose 6%.