JD.com, Inc. (NASDAQ: JD), the China-based expansive online retailer offering products ranging from electronics to fresh food, recently disclosed that it is contemplating taking over the U.K.’s electronic commerce firm, Currys. With 823 stores and roughly 28,000 employees, Currys is an integral establishment within the U.K.'s retail market.
Turning toward an overseas opportunity might seem like an unusual step for such a prominent Chinese company as JD. Let’s unravel the mystery behind JD’s interest in broadening its horizons beyond its home.
What’s Happening In JD’s Home Economy?
To understand JD’s move, one must consider China’s current economic landscape. According to the National Bureau of Statistics, the Chinese GDP exhibited a 5.2% expansion in 2023.
In stark contrast to previous financial years, China's economic growth last year was among the slowest on record. This downturn spotlights the profound impact of a collapse in the property sector and flagging consumer confidence in the world’s second-largest economy, despite a relaxation of COVID restrictions.
This economic picture becomes even bleaker when factoring in two key elements. First, there has been a sharp drop in China's Real GDP growth rate from 1.3% in the third quarter of 2023 to just 1% in the fourth quarter. It's important to remember that until late 2022, China had enforced a stringent zero-COVID lockdown policy, causing earlier growth in 2023 to arise from a shallow base.
The second factor is, considering the effect of deflation, with prices falling 1% over the last year, nominal GDP growth in 2023 was only 4.2%. Nominal GDP growth is crucial for informing elements such as debt ratios, property markets, and earnings. Deutsche Bank’s Jim Reid notes, "So this would help explain the continued weakness in Chinese equities and property markets."
Adding to China's economic woes is a double-whammy of weaker demand both domestically and overseas. Chinese exports in 2023 stood at $3.38 trillion, ...