Losing the Chinese shopper could soon have global consequences

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

While Nvidia‘s market share has gone to zero in China due to U.S. restrictions, Apple is seeing local iPhone demand pick up.

It’s no small feat for Apple. On top of escalating U.S.-China trade tensions and sluggish consumer spending, the smartphone company faces an onslaught of Chinese competitors also fighting for market share abroad.

But the iPhone maker, like so many of its Western peers, isn’t about to give up on China, especially as the world’s biggest shopping event — Singles Day — gets underway.

In just a few months, Apple has revamped its local strategy. The company in August finally opened an account on the social media app Xiaohongshu, or RedNote, which has become the hip place for sleek consumer content in China.

And as livestreaming has become a staple in Chinese e-commerce, CEO Tim Cook reportedly joined a session on ByteDance’s Douyin, the Chinese version of TikTok, last week to announce that the iPhone Air would finally launch in mainland China after an initial delay. Cook also met with Labubu creator Kasing Lung while visiting Shanghai.

Combined with product improvements, the marketing paid off.

As Singles Day kicked off on Monday night, iPhone sales in the first two hours on Alibaba’s Tmall platform exceeded the total from the first day of last year’s event.

Earlier on Monday, analysis firm Counterpoint Research said first-10-day unit sales of the new iPhone 17 series in China had nearly doubled those of its predecessor.

Strong iPhone 17 sales in the U.S., Apple’s largest market, helped too. Apple shares hit a record high Monday, reinforcing its position as the world’s second-most valuable public company after Nvidia.

Greater China, which includes Hong Kong and Taiwan, remains Apple’s third-largest market, contributing about 16% of sales in the three months ended June 28.

China is just as important for Nike, driving about 13% of the sports brand’s sales in the quarter ended Aug. 31. For Lululemon, mainland China is its second-biggest market outside the Americas with 16% of total net revenue as of this summer — up from 13% last year.

The companies all saw strong results as Singles Day kicked off. In the first hour, Apple, Lululemon and Nike were among the 80 brands selling on Tmall that saw sales exceed 100 million yuan ($14.05 million), Alibaba said. The Singles Day promotional event ends around Nov. 11.

Other U.S. brands, from beauty to nutrition, also want in on the Chinese consumer market. Late last week, 50 representatives from U.S. consumer brands gathered in Los Angeles for the first joint event hosted by Tmall Global in North America and WPIC Marketing + Technologies.

Cross-border e-commerce is “the most effective route to enter the Chinese market in most product categories, especially amid trade tensions,” said Jacob Cooke, co-founder and CEO of WPIC. “We also emphasized that Chinese consumer demand for high-quality U.S. products remains resilient despite those tensions.”

The event coincided with Alibaba’s own Singles Day launch in Shanghai, where the company showed off new AI tools to entice shoppers more effectively and reduce costs for sellers.

Alibaba claimed that one such feature can detect whether a user is shopping for a gift or a personal item, and can build a far more complex shopper profile that improves product targeting by 25%. Another allows shoppers to search with vague terms such as “best cat litter option for a home with both cats and dogs” and find a suitable product.

The new AI tools “are easy to work with,” Cooke said. “We expect this large-scale AI integration to deliver a measurable boost to Singles’ Day performance.”

These tools are also a test for Alibaba’s AI ambitions. The company has spent billions to develop its own versions of ChatGPT and video generation models, integrating them into existing business lines.

Alibaba Vice President Zhang Kaifu, who oversees AI for e-commerce, told reporters last week the company has already made back its AI investment in the online shopping business.

The company is far from being the only one using AI for retail. Smartphone company Honor last week also released an on-device AI tool that can quickly compare prices — including coupons — across online shopping sites in China.

AI-driven retail isn’t new in China, said Charlie Dai, VP and principal analyst at Forrester. He pointed out that Chinese retailers and manufacturers have been using AI tools for the past decade to forecast demand and manage supply chains, reducing inventory waste.

“[This year,] we can also expect virtual try-on, AI live hosts, conversational assistants on eCommerce and social platforms like JD.com and Douyin to boost engagement, reduce returns, and cut influencer costs,” he said.

Those cost savings are coming at a critical time for brands. China’s retail sales grew by just 3% in September from a year ago, well below levels seen before the pandemic.

That didn’t stop LVMH from opening “The Louis” this summer, a flagship store housed in a ship-shaped building just across from one of the world’s largest Starbucks Reserve locations in downtown Shanghai.

More than 100,000 people pass by The Louis every day, and about 2,500 visit it daily, according to HSBC analysts. “In a market that needs some joy, an element of surprise, real reasons to reconnect with brands given the morose backdrop, the initiative is clearly hitting a nerve even four months after the opening,” they wrote in a note Monday.

One of The Louis’ visitors last month was LVMH CEO Bernard Arnault, who reportedly also checked out upstart Chinese luxury brand Laopu Gold. The European luxury giant last week reported an improvement in Chinese consumer spending domestically, up by the mid-to-high single digits, with Asia remaining its biggest market by revenue, ahead of the U.S.

For some of the richest people in the world, U.S.-China tensions won’t stop them from trying to do business with Chinese consumers.

As Weiwan Han, partner at consultancy Bain & Company, summed it up to me: very few brands are leaving China, if only to defend their global market share.

“If you lose here, eventually you lose everywhere, because your local competition is going overseas, your e-commerce platforms are going overseas.”

LVMH would only confirm that Arnault visited The Louis in Shanghai. Apple did not respond to a request for comment.

Krishna Srinivasan, Director of the IMF’s Asia Pacific Department, discussed the impact of U.S. tariffs on Asia, U.S.-China trade tensions, and China’s economic growth trajectory.

Former PBOC advisor David Li Daokui assessed the state of the trade war between the two powers ahead of a likely meeting between U.S. President Donald Trump and Chinese President Xi Jinping.

U.S. Treasury Secretary Scott Bessent joined CNBC’s Sara Eisen at the CNBC ‘Invest in America’ Forum in Washington, D.C, where he revealed that the Trump administration will set price floors across a range of industries to combat China.

China swaps out WTO negotiator. Beijing announced Tuesday that Li Chenggang, a vice commerce minister who has been part of the negotiating team on U.S. trade, would no longer hold his other role of representative to the World Trade Organization.

Real estate drags down growth. China reported GDP growth of 4.8% in the third quarter, but fixed-asset investment for the first nine months of the year unexpectedly contracted as the decline in property investment steepened.

China replaces U.S. soybeans. For the first time since 2018, China imported zero soybeans from the U.S., instead turning to South America for the crop, according to data for September.

Chinese markets fell Wednesday, tracking losses across most of Asia.

The Hang Seng Index dropped 1.27%, while the CSI 300 declined 0.7%. Both indexes have added 28.1% and 16.29% respectively this year.

Yields on China’s 10-year government bonds were steady at 1.768%.

Oct. 23: China’s top leaders wrap up the “Fourth Plenum” to discuss five-year goals

Oct. 23-25: Chinese think tank CF40 hosts its Bund Summit in Shanghai

Oct. 25: U.S. Treasury Secretary Scott Bessent expected to meet Chinese Vice Premier He Lifeng in Malaysia; Shenzhen-based GoPro rival Insta360 to open its first Hong Kong flagship store

Oct. 27: China reports industrial profits for September

Oct. 27-30: China holds state-organized Financial Street Forum in Beijing

Oct. 29: APEC CEO Summit begins in South Korea ahead of economic leaders’ meeting; Hong Kong stock exchange closed for a local holiday