China consumption recovery is divergent: overseas growth, channel discipline and supply-demand improvement become the main determinants of winners and losers

Overview

This report systematically reviews operating drivers, competitive dynamics and key company trends in major consumer sub-sectors in China and Hong Kong, covering home appliances, restaurants, freshly made tea drinks, dairy products, hog farming, food and beverages, alcoholic beverages, cleaning appliances, gold and jewelry, duty-free, sportswear, beauty, trendy toys, and apparel and footwear OEM manufacturing. The overall judgment is that the consumption recovery is not broad-based and synchronized, but rather a structural market driven jointly by supply-demand cycles, channel efficiency, overseas expansion, brand strength and cost control.

Core views

The consumer sector is maintained at neutral overall. Overseas revenue and profit improvement at leading home appliance companies can partly offset the domestic subsidy rollback; the quality of growth in restaurants and freshly made tea drinks depends on same-store sales, per-store transaction value and store-opening efficiency; supply-demand cycles in dairy and hog farming are improving; food and beverages and alcoholic beverages are more affected by weak demand and promotional competition; sportswear requires vigilance over negative feedback from channel inventory, discounts and distributor cash flow; beauty, trendy toys and gold and jewelry still offer opportunities from brand share gains and channel expansion; apparel and footwear OEM manufacturing benefits from overseas end-market resilience, but raw material and exchange-rate fluctuations should be monitored.

Analysis framework

The report uses top-down demand and cycle assessment, combined with bottom-up validation through company operating indicators. Key indicators include revenue and earnings forecasts, same-store sales, per-store transaction value, store openings and closures, channel structure, market share, average selling price, inventory-to-sales ratio, raw material prices, exchange rates and regional revenue mix, and it identifies operating resilience and share changes through peer comparisons.

Methodology notes

• Industry researchSub-sector driver analysis

  Break down industry prosperity from demand, supply, costs, channels and competitive landscape.

  The report separately evaluates subsidies, consumer demand, supply-demand cycles, promotional intensity, overseas expansion and changes in brand share to judge the stage of each consumer sub-sector.

• Company comparisonFinancial forecasts and peer comparison

  Compare historical performance and forecast trends in revenue, operating profit, net profit and margins.

  Sectors such as home appliances compare leading companies’ growth quality, profitability and operating inflection points through annual and quarterly financial forecasts.

• Channel researchChannel inventory and pricing system analysis

  Use wholesale mix, discounts, inventory, distributor profitability and order changes to assess brand channel health.

  The sportswear case shows that excessive reliance on wholesale and inventory destocking may depress prices, weaken distributor cash flow, and further affect brand reach and market share.

• Cycle researchSupply-demand cycles and cost curves

  Determine the direction of the earnings cycle based on supply contraction, product prices and unit costs.

  The report incorporates raw milk, hog, raw material and exchange-rate trends into the analysis to identify margin inflection points in dairy, farming and OEM manufacturing.

• Competitive analysisMarket share and brand momentum analysis

  Assess brand competitiveness through market share, sales rankings, channel coverage and regional expansion.

  Sectors such as cleaning appliances, beauty, sportswear and trendy toys focus on brand share, online rankings, store expansion and overseas channel structure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Leading home appliance companies

  Domestic subsidy rollback coexists with overseas growth, and companies’ regional revenue mix determines growth resilience.

  Strengths

  Overseas presence, scale procurement, brands and manufacturing efficiency can support revenue and margins.

  Weaknesses

  Domestic demand is relatively sensitive to policy stimulus, and quarterly growth may slow as subsidy effects fade.

  Comparison

  Midea’s 2026 revenue and profit growth forecasts are higher than those of Haier and Gree; Gree has higher margins but slower revenue recovery.

  Risks

  Subsidy rollback, export frictions, exchange-rate fluctuations, raw material increases and domestic price competition.

• Restaurants and freshly made tea drinks

  Growth is mainly driven by same-store sales, per-store transaction value, store expansion and restaurant margins.

  Strengths

  Yum China has a mature operating system and sustained store-opening capability, while Chagee has potential for per-store performance stabilization and recovery.

  Weaknesses

  Rapid expansion may dilute same-store sales, and pricing and marketing investment pressures are greater in a weak consumption environment.

  Comparison

  Mature fast-food leaders rely more on stable same-store performance and scale efficiency, while freshly made tea drink brands have higher expansion elasticity and higher execution risk.

  Risks

  Same-store sales below expectations, store saturation, food safety, promotional competition and franchise system management.

• Dairy products and hog farming

  Supply-demand adjustments and raw material price changes are driving improvement in the industry earnings cycle.

  Strengths

  Stabilizing raw milk prices are favorable for dairy companies’ gross margins, and cost-leading Muyuan is more capable of navigating the hog price cycle.

  Weaknesses

  End demand may still limit product price increases and revenue growth, while farming profitability is highly sensitive to hog prices.

  Comparison

  Dairy focuses more on balancing raw material costs and consumer demand, while hog farming relies more on supply contraction and unit cost advantages.

  Risks

  Supply destocking below expectations, rising feed costs, disease outbreaks and weak end demand.

• Food and beverages, beer and baijiu

  Weak demand and promotional competition weigh on revenue and earnings, while divergence among brands and price bands intensifies.

  Strengths

  Leading brands have strong channel coverage, product portfolios and cost bargaining power.

  Weaknesses

  Beverage promotions are intensive, annual beer performance is relatively muted, and baijiu is in a demand downcycle.

  Comparison

  Mass beverages are more affected by promotions and new-product competition, beer focuses on volume and average selling price, and baijiu relies more on wholesale prices and channel inventory.

  Risks

  Price wars, inventory buildup, falling wholesale prices, rising raw material costs and slower-than-expected recovery in consumption scenarios.

• Sportswear and Nike China channels

  Channel structure, inventory destocking and full-price sales capability determine short-term profitability and long-term brand momentum.

  Strengths

  Global brands still have advantages in product R&D, marketing resources and consumer awareness.

  Weaknesses

  Greater China has a relatively high wholesale mix, and pressure on distributor profits and cash flow may weaken orders, store support and brand reach.

  Comparison

  During the channel adjustment period, other leading global brands and niche premium brands may gain more shelf space, capital and traffic.

  Risks

  Deeper discounts due to inventory clearance, volume or share loss caused by higher average selling prices, and insufficient order cuts and inventory recalls in the second half of 2026.

• Gold and jewelry, beauty and duty-free

  Sales performance is jointly driven by gold prices, tourist traffic, consumer conversion rates, online platform rankings and store adjustments.

  Strengths

  Jewelry sales in Hong Kong and Macau are recovering faster, and strong brands can gain share through product differentiation and channel efficiency.

  Weaknesses

  Jewelry stores in mainland China are still contracting, duty-free sales depend on traffic and per-capita spending, and beauty competition is highly concentrated on online platforms.

  Comparison

  Jewelry is more affected by gold prices and regional traffic, beauty relies more on new products and platform traffic, while duty-free depends on tourism and conversion rates.

  Risks

  Gold price volatility, store closures, tourism consumption below expectations, rising platform traffic costs and weakening import demand.

• Pop Mart

  Long-term growth depends on offline channels, overseas expansion, intellectual property operations and expansion into new categories.

  Strengths

  The regional channel mix is diversified, and overseas online and offline network expansion can broaden brand reach.

  Weaknesses

  Concentrated contribution from popular intellectual property may amplify product cycle fluctuations.

  Comparison

  Compared with traditional consumer brands, trendy toys have higher intellectual property monetization elasticity, but lower demand predictability.

  Risks

  Decline in the popularity of a single intellectual property, lower store expansion efficiency, overseas execution and new-category investment risks.

• Apparel and footwear OEM manufacturing

  Order trends are determined by end sales in the U.S. and China, brand inventory, Southeast Asian capacity and input costs.

  Strengths

  The U.S. apparel inventory-to-sales ratio is healthy, apparel and footwear sales are resilient, and Southeast Asian capacity layout helps diversify supply-chain risk.

  Weaknesses

  The business is highly dependent on orders from global brands, capacity utilization and low-margin manufacturing links.

  Comparison

  Differences in customer structure, apparel and footwear business mix, and regional capacity distribution determine profitability differences across OEM manufacturers.

  Risks

  Brand order cuts, changes in trade policy, increases in ethylene glycol, purified terephthalic acid and caprolactam prices, as well as fluctuations in the renminbi and Taiwan dollar exchange rates.

Key data

• Midea 2026 forecast revenueRMB 4834.13 hundred million, up 5.4% YoYForecast operating profit is RMB 470.83 hundred million, up 8.2% YoY; net profit is RMB 466.02 hundred million, up 6.0% YoY.
• Haier 2026 forecast revenueRMB 3081.13 hundred million, up 1.9% YoYForecast operating margin is 7.1%, and net profit is RMB 195.71 hundred million, up 0.1% YoY.
• Gree 2026 forecast revenueRMB 1754.52 hundred million, up 2.5% YoYForecast operating margin is 16.8%, and net profit is RMB 297.12 hundred million, up 2.4% YoY.
• Chow Tai Fook mainland China stores5266 stores in June 2026Net closures were 258 stores during the quarter; retail sales in mainland China grew 11% YoY over the same period, and same-store sales at self-operated stores grew 20%.
• Chow Tai Fook Hong Kong and Macau retail salesUp 45% YoY in June 2026Same-store sales grew 42% over the same period, reflecting a low base and improved regional demand.
• Nike Greater China wholesale relianceAbout 55% of revenue comes from wholesale channelsThe report also notes that about 65% to 70% of gross merchandise value comes from the wholesale system, making channel profitability and inventory discipline important.
• Hog cycle assessmentHog prices are expected to bottom in the first half of 2026 and recover in the third quarterMonthly indicators for fertile sows have weakened sequentially since August 2025, and supply adjustment is expected to support subsequent price recovery.
• Freshly made tea drink operating inflection pointChagee’s monthly per-store transaction value is expected to stabilize sequentially from the fourth quarter of 2025Subsequent recovery still depends on the quality of store expansion, per-store performance and margin changes.

Impact & implications

At the industry level, future excess returns are more likely to come from stock and sub-sector selection rather than a broad consumption recovery. Companies with overseas revenue, diversified channels, cost leadership and strong brand power are more likely to navigate a weak demand environment; companies highly dependent on subsidies, promotions, wholesale channels or a single product face dual pressures on growth and margins. Normalization of channel inventory, supply contraction and cost declines can bring earnings elasticity, but price wars and worsening distributor cash flow may prolong the recovery cycle.

Risks

• China consumer demand recovery is weaker than expected, putting pressure on revenue growth, average transaction value and same-store sales.
• The effects of subsidy policies fade faster, causing domestic home appliance sales growth to decline.
• Promotional and price competition intensifies, worsening margins and cash flow for brands, distributors and retailers.
• Channel inventory destocking is slower than expected, expanding discounts and damaging brands’ long-term pricing power.
• Fluctuations in raw materials, feed, energy and exchange rates push up manufacturing and operating costs.
• Overseas expansion, rapid store growth or new business investment fails to generate expected returns.
• Cyclical variables such as hog prices, raw milk and baijiu wholesale prices do not improve as expected.
• Morgan Stanley has shareholdings, investment banking business or other commercial relationships with some covered companies, which may constitute potential conflicts of interest.

What to watch

• Domestic sales growth and overseas revenue contribution after the rollback of home appliance subsidies in the second half of 2026.
• Yum China same-store sales, per-store sales, net store openings and restaurant margins.
• Whether Chagee’s per-store transaction value can continue to stabilize, as well as store expansion and margin recovery.
• Raw milk prices, number of fertile sows, hog prices and Muyuan’s unit farming cost.
• Food and beverage promotional intensity, beer volume and average selling price, baijiu wholesale prices and channel inventory.
• Nike’s inventory recalls, order cuts, discount narrowing and progress in improving distributor cash flow in the second half of 2026.
• Hong Kong and Macau jewelry sales, pace of store closures in mainland China, and Hainan duty-free traffic, per-capita spending and conversion rates.
• Pop Mart overseas stores, channel mix, contribution from core intellectual property and progress in new businesses.
• U.S. apparel and footwear inventory and sales trends, global brand orders, Southeast Asian capacity utilization, raw material prices, and renminbi and Taiwan dollar exchange rates.