For years, the world’s biggest companies poured into China, enticed by the promise of generating hefty revenue from a growing class of consumers.
That strategy in many cases paid off handsomely until last year, when the fallout from the country’s Covid-19 policies and a drawn-out property crisis spiraled the economy into turmoil. China is now grappling with significant youth unemployment, dour economic forecasts and the collapse of what was once the country’s largest property developer.
While U.S. executives have lamented weaker demand for some consumer products in China during earnings calls in recent weeks, a breakup is unlikely soon. Apple, Procter & Gamble and other companies say they are banking on a rebound.
“We’ve been in China for 30 years, and I remain very optimistic about China over the long term,” Apple Chief Executive Officer Tim Cook told analysts Thursday. Apple’s revenue and profits from the Greater China region fell sharply in the December quarter in the midst of slower sales of iPhones and iPads.
Jon Moeller, CEO of consumer-products company P&G, said during a recent earnings call that in early January he spent six days in China where he met the company’s local employees and government officials and visited residents’ homes to talk about their buying habits. That experience bolstered his view that challenges in the market are temporary and that there would be opportunities to expand the company’s business in the years ahead. Moeller added that China is poised to add roughly 200 million middle-income consumers to its population, a sign he described as encouraging.
“The long-term China opportunity remains intact,” said Moeller, whose company produces Tide detergent, Head & Shoulders shampoo, and Gillette razors.
Chinese officials are taking myriad steps to give the country an economic jolt. They have changed rules in the real-estate sector, moved to inject liquidity into the banking system and sought to prop up the battered stock market.
Capital Economics forecasts China’s economic growth this year to be below 4%, owing in part to declines in construction and exports. Still, the research firm expects the benefits from government stimulus and further increases in household spending to buoy the country’s economy in the months ahead.
Some executives have said doing business in China has become more challenging as a result of changes in government policy and stiffer domestic competition. There are also companies seeking to make supply-chain changes to reduce their reliance on the country.
Other measures indicate recovering optimism among U.S. executives doing business in China. In a survey of more than 300 members published this past week, the American Chamber of Commerce in China said the two-year business outlook for China had improved compared with this past fall. China’s attractiveness as an investment destination rebounded after a sharp decrease, the report said.
The ability for Chinese consumers to lift the economy is what Western companies want, especially those that sell high-end products. Makers of pricey leather goods and other luxury items have spent years making inroads into China to win over wealthy customers.
Last month LVMH Moët Hennessy Louis Vuitton CEO Bernard Arnault said on an earnings call that compared with 2019, there are twice as many Chinese customers arriving at the company’s domestic locations while Chinese tourism spending abroad has been going down.
“Domestic purchase in China has grown significantly, so we have to meet that,” Arnault said.
Mondelez International, the Oreo maker, still expects China to help power global growth in snacking.
Its wafer-and-creme cookies are top sellers in China, according to Mondelez, which markets Oreo flavors in that country including spicy chicken and wasabi. Mondelez has been working in recent years to introduce its products into smaller Chinese cities and then expand into more stores and with more products.
Mondelez said Tuesday that sales growth in China and other emerging markets helped buoy the snack company’s revenue in its latest quarter and that it expects that momentum to continue.
Company executives said that much of the growth in China is driven by increased distribution and that there is plenty of room to grow. Since 2019, Mondelez has added its products to 1.7 million stores in China, India and Brazil, CEO Dirk Van de Put said Tuesday. Its biscuits are only in about three million of a potential six million stores in China, and its gum business is only in two million stores, he said.
In a November interview, Van de Put said the U.S.-China relationship is among his top concerns, along with inflation and geopolitical worries. Over the next 10 years, China is expected to be one of the biggest growth markets for the types of snacks Mondelez sells, he said.
Meanwhile, there is growing competition from domestic rivals in China that are striving to capture more consumer spending. Starbucks said Tuesday that a more skittish consumer in China has prompted competitors to unfurl deals and promotions, hurting its sales in the country.
“I think it’s fair to say that the Chinese consumer is very cautious,” Starbucks CEO Laxman Narasimhan said on an earnings call.
To compete, the coffee chain said it is rolling out more beverages tailored to Chinese consumers, joining with more social-media influencers in the country and increasing the ways it sells digitally in China.
Tesla CEO Elon Musk said last month that Chinese car companies are the most competitive in the world. In China, the electric-vehicle maker has had to battle stiff competition, including its growing rival BYD, which has ambitions to further expand its electric-car business outside its home market.
“I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established,” Musk said.
General Motors has said it is working to reverse declining profits and market share in China as it struggles to compete with fast-growing Chinese brands. Last year the Detroit-based automaker earned $446 million there, roughly one-quarter the levels seen over the past decade.
”We’re evaluating China, and we think there’s a place to play,” CEO Mary Barra said during an earnings call last month. “But nothing is off the table in ensuring that GM has a strong future.”
Heather Haddon and Jesse Newman contributed to this article.
Write to Natasha Khan at natasha.khan@wsj.com