From Apple to Starbucks, Western companies’ Chinese dream is fading

Executives at these companies scoff at all this. Many say they now struggle to justify investing in the country and are talking rather than cutting jobs. A recent survey by the American Chamber of Commerce in Shanghai showed that less than half of respondents were optimistic about the prospects of doing business in China over the next five years, a record low. On December 4, General Motors (GM) boss Mary Barra said that the American automaker would write down the value of its joint ventures in China by more than $5 billion and close factories in China. Many American and European companies that once thrived in China are watching things unravel.

In recent decades, Western bosses have viewed China not just as a cheap manufacturing location but as a huge and growing market. According to our analysis, the sales in China of European and American listed companies that disclose this information will reach a peak of US$670 billion in 2021, accounting for 15% of the total revenue of these companies. Things went downhill from there. Sales fell to $650 billion last year; their share of total revenue fell to 14%. There are no signs of improvement this year. Nearly half of the companies in our data set that reported quarterly sales in China experienced year-over-year declines in their most recent reporting period.

Companies facing shrinking sales in the country include tech giant Apple, carmaker Volkswagen, coffee chain Starbucks and luxury goods group LVMH. “At this point, we should have turned the corner,” complained the regional boss of a multinational company. Another foreign executive lamented that his company’s days of frenetic growth in China seemed to be over. While some Western companies such as Eli Lilly, drugmakers and retail giant Walmart continue to grow in the country, their ranks are steadily shrinking.

One reason is China’s economic stagnation. The housing crisis has caused home prices to plummet across the country and has consumers tightening their belts. The central government said in September that it would take all measures to stimulate economic recovery. But after months of piecemeal announcements, the situation hasn’t improved much. Real estate sales are still down compared to last year and are likely to continue into 2025. Demand indicators are falling despite government promises to stimulate consumption.

Bo Zhengyuan of Beijing consultancy Plenary Session noted that deflationary pressure is hurting all Chinese companies, not just foreign ones. At the end of October, a full 27% of China’s industrial companies suffered losses. Oversupply in industries ranging from electric vehicles (EVs) to building materials has led to fierce price wars. Ms. Barra blamed a “race to the bottom” for GM’s profitability difficulties in the country.

Yet Western companies are also being beaten by Chinese rivals. Starbucks has ceded market share to Luckin Coffee, a cheaper local rival that had 21,000 stores in China in September, about three times as many as the U.S. chain. This compares with 13,000 a year ago. Starbucks’ new boss, Brian Niccol, told investors in October that the company faced “extreme” competition in China. The company is reportedly considering selling a stake in its China operations to a local partner.

In many industries, Western companies no longer enjoy the technological advantages they once had over their Chinese rivals. Chinese industrial robot manufacturers now supply nearly half of the local market, up from less than a third in 2020. Huawei’s gorgeous new smartphones in China, including the Mate 70 series launched on November 26, are adding to Apple’s troubles in China. BYD, Nio and other Chinese automakers are making electric vehicles that are not only much cheaper than Western cars but are also packed with smart technology that local consumers crave. While the Chinese market is still expanding rapidly, Western companies can still increase sales in China even as they lose market share. They no longer have this luxury.

If all this wasn’t bad enough, Western companies are also becoming collateral damage in the competition between their governments and the Chinese government. On December 2, the United States imposed new restrictions on the sale of chip manufacturing tools and high-bandwidth memory chips to certain Chinese companies. This will hurt U.S. semiconductor equipment makers such as Applied Materials, Lam Research and KLA, as well as Dutch advanced lithography tool maker ASML. Other Western chip companies may also be affected. After the news was announced, China’s four industry associations responded one after another, calling for a reduction in the purchase of American chips.

Companies in sensitive industries such as chipmaking are familiar with the risks of selling in China. However, the list of industries affected by geopolitical turmoil appears to be lengthening. Shares in European brandy makers including Rémy Cointreau and Pernod Ricard plunged in October after China said it would impose anti-dumping measures on the brandy, seemingly in retaliation for EU tariffs on Chinese electric cars. On December 2, the founder of Japanese clothing retailer Uniqlo said that the company does not use cotton from Xinjiang, a move that aroused the anger of Chinese netizens. Xinjiang is a region of China mired in accusations of forced labor. China’s Commerce Ministry may soon impose restrictions on the local operations of pvh, the U.S. owner of Tommy Hilfiger and Calvin Klein, as the company complies with U.S. laws banning the use of cotton from the region.

If Donald Trump follows through on his threat to raise tariffs on Chinese goods, Xi Jinping may respond by making life even harder for American businesses. Andrew Polk of the consulting firm Trivium China writes that foreign companies in China are caught in a dangerous geopolitical struggle. Their troubles won’t be easing anytime soon.

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