November 15, 2018

Alibaba Feels the Pinch From China’s Slowing Economic Growth

This year? He plans to spend less than half that amount, on jeans from Zara, two shirts for work and a bottle of moisturizer.

The other dark cloud hovering over the Chinese economy has drifted in from overseas.

The quarter that ended in September was the first since the Trump administration began its trade war with China. Alibaba executives have sought to reassure investors by pointing out that even if tariffs on imports make American goods more expensive, Chinese customers can still use Alibaba’s platforms to buy more products made domestically or in other countries.

But the effects of the tariffs are only beginning to be felt across China’s $12 trillion economy. Factory activity is slowing, which could eventually result in job losses and a drop in retail spending. Washington and Beijing seem to be hunkering down for a protracted conflict, one in which disagreements about trade seem inextricable from broader questions involving geopolitical and technological dominance.

For Alibaba, the timing is inopportune.

Investors have already been selling off shares in technology companies on both sides of the Pacific this year. Alibaba stock, which trades in the United States, has lost around 30 percent of its value since June. Other major Chinese internet companies have fared even worse, as fears spread over a frostier regulatory environment for the country’s most vibrant enterprises.

Alibaba has long enjoyed an unmatched grip on how Chinese consumers shop on their phones and computers. Lately, the company has said its future depends on extending its consumer empire into the wider, nondigital world.

The company now has nearly 80 of its lavish, full-service Hema supermarkets, up from 20 a year ago. Alibaba’s logistics arm, Cainiao, recently opened what it called the “largest robotic smart warehouse in China,” in which 700 boxy droids wheel around rearranging giant shelves laden with goods.

Expanding its operations offline has helped raise Alibaba’s sales growth. Revenue from retail experiments like Hema jumped 151 percent in the latest quarter from a year earlier. Sales in the company’s cloud-computing division, the market leader in China, soared 90 percent.

But spending on developing the new ventures has squeezed the company’s bottom line. Asked on Friday whether the more pessimistic outlook for this year might lead Alibaba to scale back on such projects, Ms. Wu, the chief financial officer, said the company evaluated them not on their financial return, but according to other metrics, such as the number of users they attract.

Article source: https://www.nytimes.com/2018/11/02/technology/alibaba-quarterly-earnings.html?partner=rss&emc=rss

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