They flocked to China for Boom Times. They’re Thinking Twice Now.

AH Beard, a 123-year-old luxury bedding manufacturer based in Australia, started browsing China around 2010. At the time, the family business faced dizzying competition from low-cost, foreign-made mattresses in its home market. With 1.4 billion consumers and a growing middle class loving premium brands, China seemed like a good place to expand.

The choice has paid off.

AH Beard opened its first store there in 2013. Before the coronavirus pandemic, sales in the country were growing more than 30 percent per year. There are currently 50 AH Beard stores across China that plan to open 50 more. However, like most foreign companies operating in China today, AH Beard began to think more carefully about its strategy.

Beijing’s strict Covid-19 policy has taken a heavy toll on business. The company’s exports to China are no longer increasing.

This month, Chinese officials announced that the economy was growing at its slowest pace since the early days of the pandemic. Unemployment is high, the housing market is in crisis, and nervous consumers living under the constant threat of quarantine and mass testing are not spending.

Now, the once-resilient Chinese economy looks shaky, and companies flocking to the country to join the boom times face a serious reality: flat growth in what was once seen as a credible economic opportunity.

“I certainly don’t see China returning to the growth rates we saw before,” said AH Beard CEO Tony Pearson.

So far, most companies are keeping their course, but there’s a constant stench of caution that didn’t exist just a few years ago.

Geopolitical tensions and the US-China trade war have unleashed punitive tariffs for some industries. Covid-19 has disrupted the flow of goods, raised the price of almost everything, and delayed shipments for months. China’s pandemic response to quarantine and curfew has kept customers at home and out of stores.

AH Beard opened its flagship store in Shanghai about 10 years ago with a local partner. And like any high-end brand, it launched products at unbelievable prices. China was the top-selling market, with a premium $75,000 mattress.

Since then, the cost of shipping a container has increased sixfold. The cost of bedding materials and components, such as latex and natural fibers, has increased significantly. Other worrying signs have emerged, including the housing collapse. (New homes often mean new mattresses.)

Mr. Pearson said he hopes this year’s congress of the Communist Party of China will clarify “the course of China” and instill greater confidence in consumers. “The economy still has growth potential,” he said. “But there’s always a degree of risk.”

After the 2008 financial crisis, China, where the rest of the world shrank, emerged as an outlier and international companies stepped in.

European luxury brands set up sparkling stores in China’s biggest cities, while US food and consumer goods companies scrambled for supermarket shelves. German automakers opened dealerships, and South Korean and Japanese chip firms courted Chinese electronics manufacturers. A growing construction market has boosted demand for iron ore from Australia and Brazil.

Chinese consumers rewarded these investments by opening their wallets. However, the pandemic has shaken the confidence of many shoppers who now see rainy days.

Fang Wei, 34, said he has slashed his spending since quitting his job in 2020. In the past, he has spent most of his salary on brands like Michael Kors, Coach and Valentino during frequent shopping trips.

Despite being rehired in advertising in Beijing, he now devotes a quarter of his salary to food, transportation and other living expenses. He gives the rest to his mother, who puts the money in the bank.

Ms. Fang said, “I pass everything on to my mother every month because I’m worried about being fired.” “The transition from enjoying life to making a living is very depressing.”

A more frugal Chinese consumer is a concern for foreign businesses, many of whom offer products that offer a premium alternative rather than a low-cost option. Jun-Min, CEO of Ginseng by Pharm, a South Korean manufacturer of ginseng products, said he himself noticed that Chinese “wallets are getting thinner”.

Mr. An said sales of the company’s main product, a 2-ounce bottle of ginseng, which retails for $18, peaked before the pandemic. The company shipped 600,000 bottles to China and Hong Kong in 2019.

Sales fell in 2020 because it was difficult to get products into the country during the Covid quarantines. Things have mostly bounced back, although still 10 to 20 percent below the peak.

While Mr. An says he is worried about the economic slowdown, he remains optimistic that the market for health products in China and familiarity with ginseng, an aromatic root said to have health benefits, will continue to benefit sales. It still seeks regulatory approval to sell in Europe to protect its bets.

This is far from the unbridled optimism of the past.

In 2016, when China was the fastest growing and most profitable market, Adidas CEO Kasper Rorsted declared that the country was the “star of the company.” Adidas has invested aggressively to expand its foothold. It grew from 9,000 stores in China in 2015 to the current 12,000, but only 500 are operated by Adidas. Then the music stopped.

After initially predicting sales in China would accelerate this year, Adidas lowered expectations in May as Covid quarantines continue to spread. The company said it now expects Chinese revenue to “decrease significantly” and an abrupt recovery is unlikely.

For now, Adidas is indomitable. In a meeting with analysts, Mr. Rorsted said the company does not plan to cut costs or withdraw from the country. Instead, it will “do what we can to double and accelerate growth”.

Many foreign companies had bet on the rise of the Chinese middle class as a reliable source of this growth. Bain & Company, a consulting firm, said it expects China to be the world’s largest luxury market by 2025, fueled in part by what senior partner Federica Levato says is a “huge wave” of a still rising middle class.

But such forecasts seem less attractive to some foreign companies that once relied heavily on the Chinese market.

Kamps Hardwoods, a Michigan-based producer of kiln-dried lumber for homes and furniture, initially seized the opportunity to expand into China. Rob Kukowski, the company’s managing director, said that at a Chinese trade show in 2015, a Chinese buyer surprised him with a huge offer to buy enough stock to fill 99 shipping containers. The $2 million lumber order corresponded to Kamps’ four months’ work.

Chinese buyers were so desperate for lumber at the time that they refused to leave until they visited the company’s booth and Mr. Kukowski promptly accepted the one million dollar deal. By 2016, China accounted for 80 percent of the company’s sales.

Kamps soon realized that profiting from large Chinese orders was difficult because many buyers were not concerned with quality and simply wanted the cheapest price possible. The company began focusing its efforts on finding customers willing to pay more for a better product in the United States and other overseas markets.

This was accidental timing. When China raised tariffs on US timber in 2018 as part of its trade war, Kamps was in a better position to weather the downturn. Today, China accounts for only 10 percent of Kamps’ sales, but it still has a large indirect impact on the company. Mr. Kukowski said China is such a large buyer of US timber that when spending stops, an industry-wide downward price war begins.

“The purchasing power is very strong and a large part of our product is entering this market,” said Mr. Kukowski. “Our industry will face significant problems if their economy slows down.”

Jin Yu Young contributing reporting. Claire Fu contributed to research.

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