Alibaba’s Strong Results Suggest Chinese Consumers Are Still Spending

BEIJING — The Chinese consumer isn’t dead yet.

So says Alibaba Group, the Chinese e-commerce giant, which on Thursday reported strong financial results for the three months that ended in June, despite China’s slowing economic growth and a trade war with the United States that has hit the country’s factories.

The results, from a company that symbolizes the rising confidence of the Chinese consumer, suggest a mixed picture for the world’s second-largest economy after the United States. Just the day before, the country reported its worst monthly figures for industrial output in 17 years. Exports have fallen, though they rose unexpectedly in July, and the country’s factories are having a harder time charging higher prices for the goods they turn out.

But Alibaba’s results point to strengths. Though the pace of growth has slowed, Alibaba is still adding customers. China’s overall retail sales growth, while also slowing, is still strong compared with that of other countries.

“The question that is invariably asked is: How does Alibaba’s business, which is consumption-driven, continue to deliver robust growth despite challenges in the broader economy?” an Alibaba co-founder, Joseph Tsai, said in a conference call.

“I want to offer two reasons. Both are big secular trends that are happening in China that we have taken advantage of. First is demographics, and the second is the rapid pace of digitization.”

China’s $5.5 trillion domestic consumption market is driven by the emergence of a middle class of over 300 million people living in large cities as well as the rapid urbanization of the countryside, Mr. Tsai said.

The question for Alibaba — and for China’s leaders as the trade war grinds on — is how long that strength will last and whether it will be enough to blunt other headwinds.

Alibaba said on Thursday that revenue rose 42 percent, to $16.7 billion. Its net profit more than doubled to $3.1 billion from a year earlier, when costs involving employee compensation sharply reduced the bottom line. The company’s shares, which trade in New York, rose about 3 percent in early trading.

Alibaba’s earnings were consistent with retail sales in China that showed shoppers continued to spend. According to official statistics, retail sales rose 8.3 percent in the first seven months of the year compared with a year earlier, though July retail sales were up 7.6 percent, missing estimates.

“Confidence has improved somewhat,” said Wang Tao, chief China economist for UBS. “Late last year, there was a wall of uncertainty.”

Ms. Wang cited a survey of 3,000 consumers that UBS conducted in May that showed consumers were still buying because they said their salaries had increased and their property wealth had risen. “In general, the trade war has not had a big impact on the labor market,” she said.

It is not clear how long that will last. Ms. Wang said she believes the tariffs could still add to economic uncertainties and that it could slow growth.

But e-commerce remains an area where shoppers seem to be still optimistic. Case in point: Alibaba’s closest rival, On Tuesday, the company posted a profit of $90.1 million, compared to a net loss of $310 million a year ago.

Alibaba’s strong result did not come just from consumer growth. The company, which provides digital marketplaces in which retailers set up virtual shops to sell their wares, said its strong results came in part from improved algorithms that better connected buyers and sellers.

It also saw strong sales growth from the commissions it charges retailers for using its services, in another positive sign. As China’s economic news turned markedly gloomier toward the end of last year, Alibaba executives said that the company would delay charging merchants higher rates for placing ads on its digital shopping sites.

The company also added customers at a slowing but still healthy clip. In the last quarter, the number of annual active consumers rose by one-sixth, to 674 million. That was a slower pace than the increase from a year before but still showed interest by consumers wanting to buy goods online.

Alibaba may have also benefited from shifts in what Chinese consumers want to buy. Analysts say the trade war with the United States has prompted shoppers to become more selective, and many have switched to buying domestic brands that they feel are of high quality.

“There’s definitely a ‘China for China’ trend that’s happening right now, meaning people shifting toward domestic brands,” said Ben Cavender, a senior analyst at China Market Research, a consultancy based in Shanghai.

Even though Alibaba makes nearly all of its money in China, the company’s shares have swung wildly this year as the trade war has continued on its roller-coaster course. Since talks between Washington and Beijing hit an impasse in May, Alibaba shares have lost around 15 percent of their value.

Alibaba is considering a second share listing in Hong Kong. That would allow mainland Chinese investors to invest more easily in the company and give it a backup source of funding in case Washington decides to curb Chinese businesses’ access to Wall Street.

The company received an unwelcome bit of publicity last week when Malaysia filed criminal charges against several people, including Alibaba’s president, Michael Evans, a former Goldman Sachs executive, in connection with a multibillion-dollar fraud scandal. Alibaba said at the time that it was monitoring the situation.

Mr. Tsai and other executives did not comment on the accusations on Thursday.

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