Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why Chinese Consumer Stocks Are Underperforming Exports
Transcript
- Lucas: Alibaba is down nearly eight percent over the past five sessions. JD.com, Baidu, Pinduoduo — all sharply lower. Meanwhile, the broader China ETFs like FXI and KWEB are barely down a tenth of a percent. So the question today is: why are Chinese consumer stocks getting hammered while the export-heavy side of the market holds up? Luna: It's a real split. And it's not just one bad day — this has been building for weeks. What's the catalyst today? Lucas: Part of it is that the yuan has been incredibly stable. It's at 6.77 per dollar, basically flat for the month. That's great for exporters — they can plan ahead, no currency risk. But for consumer companies that rely on domestic spending, a stable yuan doesn't help when people aren't opening their wallets. Luna: Right, because the trade balance is still in massive surplus. April's surplus was fifty-six billion dollars. Exports keep growing. So the factory side is fine. The consumer side is the weak link. Lucas: Exactly. And look at the data: imports of goods and services hit four point four trillion dollars in the first quarter. That's up from last year. So China is buying more from the world, but domestic consumption isn't translating into profits for local consumer companies. Why? Because the spending is going to services, travel, maybe education — not to e-commerce or big-ticket items. Luna: That makes sense. Alibaba and JD are dependent on discretionary goods. If people are spending on experiences, those platforms suffer. But Baidu and Pinduoduo — they're different. Baidu is search and AI, Pinduoduo is discount e-commerce. Why are they down too? Lucas: Baidu is a bit of a different story. It's down five and a half percent this week. That's partly because of broader tech weakness globally — the NASDAQ has been under pressure. But also, Baidu's advertising revenue is tied to domestic small businesses, and those are feeling the pinch. If consumer confidence is low, small businesses cut ad spend. Luna: And Pinduoduo — down almost five percent. That one surprises me because it's supposed to be the low-end play, the one that benefits when people trade down. Lucas: It should, but the problem is that even discount e-commerce is seeing slowing growth. The market is worried about saturation. Plus, Pinduoduo has big exposure to agricultural goods, and food price inflation has been modest. So the volume isn't there. And there's another factor: the US dollar index is at 120, which is strong. That hurts emerging market sentiment across the board. Luna: So the consumer stocks are getting hit from multiple angles: weak domestic demand, a strong dollar, and specific company concerns. Meanwhile, the export sector is humming along. It's a tale of two economies. Lucas: And it's exactly the kind of divergence that makes China such a tricky market to navigate right now. If you look at the trade-weighted dollar index, it's up to 120. That's a headwind for all emerging markets, but China has the advantage of a managed yuan. So the export sector isn't getting crushed by currency appreciation. But the consumer sector doesn't get that buffer. Luna: Let me jump in here — I think this is a good moment to mention something. We deliberately keep this show free of ads. No sponsors, no interruptions. And that's a choice we've made because we want the conversation to be exactly what it is, without any outside influence. If you find value in that — if walking through the economy with us has made something click — the simplest way to support that is buy me a coffee dot com slash fexingo. It's not a subscription, it's just a way to say 'keep going'. And it genuinely helps. Lucas: Yeah, that's right. It keeps us independent. And we appreciate anyone who chips in. So, back to the divergence — the question is whether this consumer weakness is temporary or structural. Luna: What's your take? Are we looking at a few bad quarters, or is something fundamentally changing in how Chinese consumers spend? Lucas: I think it's partly structural. The property sector stabilization we talked about in episode 29 hasn't translated into a consumer rebound because people are still cautious. They're saving more, paying down debt. That's a long-term shift. But there's also a cyclical element: the government could stimulate consumption. They've been reluctant, but if trade tensions escalate further, they might have to. Luna: Speaking of trade tensions, the headlines today are dominated by Trump canceling Iran strikes and picking a new intelligence director. But there's also the ongoing tariff situation. How does that play into this? Lucas: Tariffs are a double-edged sword for China. They hurt exports in the long run, but in the short term, they create uncertainty that depresses consumer confidence even more. If people are worried about their jobs in export industries, they spend less. So the tariffs indirectly hit the consumer stocks we're talking about. Luna: And yet, the export data keeps surprising to the upside. April's trade surplus was fifty-six billion. That's huge. So the factories are still running. Lucas: Right. Part of that is front-loading — companies shipping early to beat potential tariffs. Part of it is that China has diversified its export markets. Southeast Asia, Latin America, Africa — they're buying more Chinese goods. So even if US demand softens, there's a cushion. Luna: But that doesn't help Alibaba or JD. Their customers are mostly domestic. Lucas: Exactly. And that's why you see this split. The ETFs that track China broadly — FXI, MCHI, KWEB — they have a mix of exporters and consumer names. So they're down only a little. But the pure consumer plays are getting crushed because the domestic story is weak. Luna: Let's look at NIO. Down 2.6% this week. Electric vehicle demand in China is still growing, but competition is brutal. NIO is losing market share to BYD and newer entrants. And consumer hesitation on big purchases like a car is real. Lucas: NIO is a good example. It's a premium brand, so it's particularly exposed to discretionary spending. When consumers are cautious, they don't buy a sixty-thousand-dollar EV. They buy a cheaper one or they wait. So NIO suffers disproportionately. Luna: So if I'm an investor looking at China right now, do I avoid consumer stocks entirely? Or is there a buying opportunity? Lucas: That's the million-dollar question. If you believe the government will eventually unleash consumer stimulus, then names like Alibaba and JD at these levels could be bargains. Alibaba is trading at a forward price to earnings ratio of around ten — that's cheap for a company with its cash flow. But if the consumer malaise persists for another year, those stocks could stay depressed. Luna: What about the yuan? If it weakens, would that help consumer stocks? Lucas: Weakening the yuan would hurt consumer stocks because it would raise import costs and reduce purchasing power. So no, that wouldn't help. The yuan stability is actually a net positive for the consumer sector, but it's not enough to offset the demand weakness. Luna: So we're stuck in this weird equilibrium: exports are strong, consumer is weak, and the yuan is steady. The market is pricing in that this continues. Lucas: Exactly. And until we see a catalyst — either a policy shift or a data surprise — that divergence will persist. The next big data point is the June retail sales figures, due in mid-July. If those show a pickup, you could see a rotation back into consumer names. Luna: But if they don't? Then we're looking at more of the same. And maybe the ETFs start to reflect that weakness more. Lucas: Right. Because if the consumer drag becomes severe enough, it could pull down the broader indices. The factory boom can only offset so much. Eventually, domestic demand matters. Luna: I want to circle back to something you said earlier about the trade-weighted dollar index at 120. That's a big number. How does that affect China's policy choices? Lucas: It constrains them. If the dollar is strong, China can't let the yuan weaken too much without risking capital outflows. So they have to keep the yuan relatively stable. That means they can't use currency depreciation as a tool to boost exports further. And it also means they have to rely on fiscal and monetary policy to stimulate domestic demand — which they've been doing, but cautiously. Luna: Cautiously is the key word. They're not going all-in on stimulus because they're worried about debt and inflation. Lucas: Precisely. So the market is left to sort out the winners and losers. And right now, the winners are the exporters and the losers are the consumer names. It's a pretty clean trade. Luna: For our listeners who are trying to make sense of this, what's the one thing they should watch? Lucas: Watch the retail sales data. And watch the consumer confidence index. If those turn, the consumer stocks could rebound sharply. If they don't, the divergence continues. It's that simple.