Chinese consumers are stuck at home but still spending big, says Alibaba

China’s economy has slumped as Covid-19 cases surged in the world’s most populous country. But Chinese consumers stuck at home are still spending.

E-commerce giant Alibaba reported better-than-expected earnings and sales for its most recent quarter last Thursday.

Alibaba shares rose nearly 15% in late-morning trading after the company said revenue was up 9% from a year earlier, beating analysts’ forecasts.

Alibaba said the strength was due to solid demand for online and mobile shopping, as well as a 12% jump in sales from its massive Alibaba Cloud unit.

Alibaba said it now has more than 1 billion active customers in China, the first time it has surpassed that milestone. The company has more than 1.3 billion customers worldwide.

Alibaba Charman and CEO Daniel Zhang said in a press release that Alibaba was able to publish solid results “despite the macro challenges that impacted supply chains and consumer sentiment.”

The company hopes that supply chain disruptions can end soon. Alibaba Chief Financial Officer Toby Xu said during a conference call with analysts on Thursday that “we are certainly seeing signs of improvement in the month of May,” although it still “takes time” for outstanding shipments to be delivered.

Xu added that “many merchants may need to invest to increase their revenues,” especially as retailers prepare for Alibaba’s mid-year shopping festival on June 18.

Change in Chinese consumer buying habits

Concerns about the rise of Covid-19 in major Chinese cities remain a major concern. This has led to a shift in how (and what) Chinese consumers are buying, as well as in the US and other parts of the world.

“While our traffic and user engagement have remained resilient, consumption patterns across all categories across our platforms have changed,” Zhang said on the conference call.

He noted that sales in the fashion and electronics categories fell, but “demand for essential supplies” such as food and personal care products “has increased significantly with more consumers stocking up at home.”

Zhang said other categories, such as healthcare, sportswear and outdoor products, also grew rapidly.

Major US retailers such as Walmart and Target reported similar trends.

But Alibaba faces other significant challenges. Regulators in China have scrutinized their local tech giants more closely in recent years.

And many large Chinese companies that trade in the United States could be forced off the New York Stock Exchange and Nasdaq. The Didi ride-sharing app is an example of this.

Starbucks competitor Luckin Coffee has since been delisted, though the company staged an impressive comeback in China after accounting problems.

Tension between China and the US remains high as well. President Biden continued to speak harshly about possible military intervention in China if it attacks Taiwan.

However, Biden and US Treasury Secretary Janet Yellen have suggested rolling back some of the most onerous Trump-era tariffs on Chinese goods.

Other major Chinese companies have also reported more optimistic results lately. Alibaba’s rival JD.com recently said that last quarter sales beat forecasts.

And Chinese search giant Baidu reported better-than-expected results on Thursday, thanks to growth in its cloud and artificial intelligence units.

Baidu shares rose 10% on Thursday but still fell more than 10% on the year.

Alibaba, JD and other major Chinese tech companies such as online retailer Pinduoduo and electric car companies Nio, Xpeng and Li Auto are still down sharply in 2022 despite recent recoveries.