If you were selling iron ore or aluminium to China right now, or hoping to flog Swiss watches, Prada bags or Audis, you probably wouldn’t be overly optimistic about Chinese growth prospects in the short term. Anyone viewing this year’s slowing 7% GDP growth in the first half of this year could be subdued as well. Yet taking a broad-brush approach to the current market conditions in China doesn’t quite tell the full story.
For most brands selling to consumers, the growth in retail spending is a strong gauge of how things are tracking in the market. The last couple of months have been particularly interesting in light of plummeting stock prices, with retail sales growing faster than expected at 10.8% year-on-year in August, following 10.5% growth in July.
There’s no debating that many things in China aren’t climbing at the mouth-watering rates from a couple of years ago, but the overall trend for consumer spending is far from grim. Consumption accounted for 50.2% of growth to China’s GDP in 2014. In the first half of this year, it contributed to 60.0% growth. If GDP grows at 7% this year, and consumption continues to track at 60% of that growth, Chinese consumers will spend $433 billion more this year than in 2014.
So if China is buying less aluminium, fewer Prada bags and less fried chicken from Kentucky, what are they buying? They’re buying many things related to experiences and entertainment. China’s box office revenue grew 48.5% in the first half of this year, with cinema goers having already spent more this year than all of 2014. Consumers are expected to shell out 66% more on mobile games this year than last. And spending on tourism continues to look good, up 28% in 2014.
Heath-related products are retaining strong growth, whether it be the booming multivitamin category or healthy and trusted imported food, which grew 25% year-on-year in August. Sales of those segments continue to soar online, on trend with overall ecommerce sales, which grew almost 50% in the first half of this year.
China is a complicated market, and while high level figures are important, there are likely to be many more micro figures to help you get a clearer picture of the current and future opportunities in your specific industry. China Skinny can help with that. We hope you enjoy this week’s Skinny.
China Released a Big Dump of Data, and Some of It Wasn’t That Bad: Year-on-year factory output growth in China was lower than forecast at 6.1% in August, but retail spending grew higher than expected at 10.8%, up from 10.5% in July.
What Chinese Consumers Want: In the early days of China opening up, guanxi or connections were key to succeeding in China; now those who understand the consumer culture and cultural traditions have a better chance of succeeding. For example, creating a potato chip that is perceived as healthier may not mean using less oil, but adding things such as cooling cucumber which can help balance the hot fried chip.
The Chinese City With the Best Economy Isn’t the One You Think: Chengdu is China’s most successful economy based on job growth, foreign investment and high-value-added industries according to U.S.-based Milken Institute. Shanghai, Tianjin, Dalian and Nanjing rounded out the top-5. Jiangsu province was home to seven of the top-10 tier-3 cities.
Shopping Centres Go Social to Attract Chinese Consumers: 73% of Chinese consumers regard shopping as a leisure activity, and roughly half think it is “among the best ways of spending time with the family.” To make shopping malls more of an overall experience, mall developers are increasing the mix of food and beverage, with the portion increasing to 30-40% of most malls versus 10-15% before 2007. Developers such as Wanda allocate 40-50%.
Uber to Enter 100 More Chinese Cities in Next 12 Months: CEO: Uber is expanding further into China as it solidifies its relationship with Baidu. The company says it welcomes new government regulations and is even adopting the language of Chinese officialdom, speaking on favoured Communist Party subjects such as harmony and stability. In related news, China’s biggest ride sharing app Didi Kuadi and biggest food delivery service Ele.me have partnered up, which could see them launch an UberEats type service in China.
China’s Online Retail Rose 48.7% in H1 2015: China’s online retail sales grew 48.7% year-on-year to hit ¥1.6 trillion ($250 billion) in the first half of 2015. The number of shoppers grew 19.1% to 417 million according to CECRC. Tmall accounts for 57.7% of the B2C market with JD at number 2 on 25.1%. Suning is a distant third on 3.4%.
Social Media Playing Key Role In Chinese Ecommerce: After receiving rotten fruit purchased online in China, Chinese writer Liu Liu contacted the service centre multiple times over the next few days but received no reply. After posting on her Weibo account to her 10 million followers, she received an apology call within 5 minutes. Another call followed offering of a full refund and vouchers.
Here’s What the Future Will Look Like, According to Baidu and Microsoft: Baidu’s 3-min advertising video about how they see the world in the future including augmented reality, touchscreen surfaces everywhere, real-time speech and text translation, thin tablets and remote health monitoring.
Half of Chinese Consumers Use Internet to Order Groceries: 46% of connected Chinese consumers say they are already ordering food online for home delivery – almost double the global average of 25% according to Nielsen.
Visa Policy Spurs Growth in Trips to U.S.: More than 30,000 Chinese arranged independent U.S. tourism and business visas through Ctrip from January to August, a threefold increase from last year triggered by the 10-year visa. Chinese tourists to the U.S. have grown from 397,000 in 2007 to 2.19 million last year. Without the requirement to go through a group booker, fewer Chinese are opting for tour groups and choosing a combination of tours when they arrive in the U.S., such as adventure tours, museum tours or university ones.
‘Uncivilised’ Behaviour Gets Chinese Tourists Sent Home With 10-Year US Visas Revoked: Two Chinese travellers were repatriated upon arrival in the United States after immigration officers found they had “uncivilized [behaviour] records.” Privacy law means the reasons are not public, however likely acts include “damaging cultural relics, gambling, and participating in obscene activities.”
Chinese Sperm Banks Entice Donors with iPhone Cash: Following reports of Chinese consumers giving away kidneys in return for iPhones, sperm banks in China are offering men a less painless option.
Apple Pay Begins Entry Into Chinese Market: Apple has registered an entity in the Shanghai Free Trade Zone, with one of its operations described as ‘services and system integration in the field of payments’. It is up against some established and formidable mobile payment systems such as Alipay and TenPay, which accept payments in an expanding list of retailers abroad.
Do China’s Ghost Cities Offer a Solution to Europe’s Migrant Crisis?: There are estimated to be between 20 and 45 million unoccupied homes across China. 21% of urban households own more than one home.
Retail: What Differentiates Hong Kong & Chinese Luxury Shoppers?: Affluent Mainland Chinese are more likely to spend on luxury goods such as watches, bags, jewellery, fashion and accessories, whereas Hong Kongers have their biggest budgets assigned to travel categories according to Agility. Digital played a more significant role in the Mainland than HK. Their motivations for buying luxury were the same though, with the top-5 being 1) Design/styling, 2) After-sales service, 3) Exclusivity, 4) Craftsmanship, and 5) Country of origin.