They poured into China for Boom Times. Now they are thinking twice.

AH Beard, a 123-year-old luxury mattress manufacturer based in Australia, began looking at China around 2010. At the time, the family-owned business faced looming competition from foreign-made low-cost mattresses in its internal market. China, with its 1.4 billion consumers and a growing middle class with a taste for premium brands, seemed like a good place to expand.

The choice paid off.

AH Beard opened its first store there in 2013. Before the coronavirus pandemic, sales in the country were growing more than 30% annually. There are now 50 AH Beard stores across China, with plans to open 50 more. But like most foreign companies operating in China nowadays, AH Beard has started 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 on the rise.

This month, Chinese officials announced that the economy has grown at the 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 blockades and mass testing – are not spending.

Now, China’s once resilient economy looks shaky, and companies that flocked to the country to participate in boom times are faced with a sobering reality: flat growth in what was once considered a reliable economic opportunity.

“I certainly don’t see China returning to the growth rates we had seen previously,” said Tony Pearson, CEO of AH Beard.

So far, most businesses are following the course, but there’s a constant whiff of caution that didn’t exist just a few years ago.

Geopolitical tensions and a US-China trade war have unleashed punitive tariffs for some industries. Covid-19 has growled the flow of goods, raising the prices of almost everything and delaying shipments for months. The response to the Chinese pandemic of quarantines and lockdowns has kept customers at home and out of stores.

AH Beard opened its flagship store with a local partner in Shanghai nearly 10 years ago. And like any high-end brand, it has launched products with prices that defy belief. China has become the best-selling market for its top-of-the-range $ 75,000 mattress.

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

Mr. Pearson said he hoped that the Chinese Communist Party congress later this year would clarify “the trajectory for China” and instill more confidence in consumers. “The economy still has growth potential,” he said. “But there is always some degree of risk.”

After the 2008 financial crisis, when the rest of the world shrunk, China emerged as an outlier and international companies rushed in.

European luxury brands have erected glittering stores in China’s biggest cities, while US food and consumer goods companies have pushed for supermarket shelf space. German carmakers have opened dealerships, and South Korean and Japanese chip companies have courted Chinese electronics manufacturers. A booming construction market has fueled demand for iron ore from Australia and Brazil.

Chinese consumers have rewarded those investments by opening their wallets. But the pandemic has shaken the confidence of many buyers who now see rainy days on the way.

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

Although she is employed again, working in advertising in Beijing, she now devotes a quarter of her salary to food, transportation and other costs of living. She gives the rest of her to her mother, who puts the money in the bank.

“Because I’m worried about being fired, I transfer everything to my mother every month,” Ms. Fang said. “It is very depressing to go from enjoying life to subsistence.”

A more thrifty Chinese consumer is a concern for foreign companies, many of which offer products that are not the low-cost option but a premium alternative. An Jun-Min, CEO of Ginseng by Pharm, a South Korean manufacturer of ginseng-based products, said he too noted that “Chinese wallets have become thinner.”

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

Sales plummeted in 2020 as it was difficult to bring products to the country during the Covid lockdowns. Business has mostly rebounded, although it is still 10-20% down from the peak.

Although Mr. An said he was concerned about the economic slowdown, he remains optimistic that the health care market in China and familiarity with ginseng, an aromatic root said to have health benefits, will continue to benefit sales. To cover his bets, however, he is also seeking regulatory approval to sell in Europe.

This is a far cry from the unbridled optimism of the past.

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

After initially predicting sales in China would accelerate this year, Adidas slashed expectations in May as Covid blockades continued to spread. The company said it now expects Chinese revenue to “decline significantly” and a sudden rebound is unlikely.

For now, Adidas remains undeterred. Mr. Rorsted said in a call with analysts that the company has no plans to cut costs or withdraw from the country. Instead, “it will do everything it can to double and accelerate growth.”

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

But this kind of forecast seems less appealing to some foreign companies that once relied heavily on the Chinese market.

Kamps Hardwoods, a Michigan-based manufacturer of kiln-treated lumber used for homes and furniture, seized the opportunity to expand to China at first. At a Chinese trade show in 2015, Rob Kukowski, the company’s general manager, said a Chinese buyer stunned him with a huge offer to buy enough inventory to fill 99 containers. The $ 2 million lumber order represented four months of activity for Kamps.

Chinese buyers at the time were so desperate for lumber that they would visit the company’s booth and refuse to leave until Mr. Kukowski immediately accepted a million dollar deal. By 2016, China accounted for 80% of the company’s sales.

Kamps soon realized that it was difficult to profit from large Chinese orders because many buyers were not interested in quality and just wanted the lowest possible price. The company began to focus its efforts on finding customers in the United States and other overseas markets willing to pay more for a better product.

It was a fortuitous timing. When China raised tariffs on US lumber in 2018 as part of a trade war, Kamps was in a better position to weather the recession. Today, China accounts for only 10% 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 lumber that a bearish price war ensues across the industry when it stops spending.

“With their strong purchasing power and so much of our product going into that market,” Kukowski said. “Our industry will encounter significant problems if their economy slows down.”

Jin Yu Young contributed reportage. Claire Fu contributed to the research.

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