Here are this week’s news and highlights for China:
China Seeks to Change Economic Landscape as Donald Trump Escalates US Decoupling Risks: Last week President Xi Jinping made two strategic decisions that could redefine China’s economic landscape in the coming decades as risks of decoupling from the United States continue to rise. China should first focus its domestic economic efforts on activities in “central cities and city clusters”, a major shift from the traditional idea of even distribution across big and small cities. It will also upgrade China’s industrial supply networks to forge value chains that are “autonomous, controllable, safe and effective.” An official statement noted “China is the world’s largest manufacturer and is the only country in the world possessing all industrial sectors. Industry and technological collaboration between upstream and downstream enterprises is needed to build innovation-based and high value-added industrial chains.” The announcement follows the list of 20 measures to improve consumer spending, including encouraging internet companies to partner with factories to develop homegrown brands, night markets, trade-in incentives for purchases of new appliances, and a relaxation of car purchase restrictions in major cities.
China’s Social Credit System ‘Could Be Used Against Companies in International Trade Disputes’: An EU Chamber of Commerce report says data collected could be used to compile a blacklist of ‘unreliable entities’. Companies will be subject to series of rewards and punishments and they have been told “no one should be naive about this.” For companies, higher scores will mean lower tax rates, better credit conditions, easier market access and more public procurement opportunities, but lower scores could lead to sanctions and blacklisting. Multinational companies in China are already subject to roughly 30 different regulatory ratings and compliance records, and can expect to be rated against around 300 requirements under the new system.
Adapting for China? Winning Brands Don’t Seek to be Understood, but to Understand: Modernisation does not equal Westernisation in China. Global trends may open up similar opportunities for your brand in Chinese and Western markets. But look closely, because the consumer motivations behind them may not be as similar as you think. New behaviours take time to implement. Consider how to bridge the gap and make the brand feel less “foreign” for consumers in the short-term, but above all, ensure you have a compelling reason for people to change their behaviour.
700K Data Points Reveal China’s Edge in the Trade War: There’s no winner in a trade war – what matters for the US and China is who loses least. Bloomberg Economics’ analysis of 700,000 trade data points shows that, in one important respect, the US is the biggest loser. China was the dominant supplier of many tariffed products, meaning US importers are scrambling – and failing – to find replacements. With China sourcing from a wider variety of countries, its firms face smaller supply disruptions.
Most Chinese Students Spend ¥10,000 ($1,400) a Year on Extracurricular Classes: As many as 60.4% of Chinese parents sign their children up for extracurricular classes and pay an average of ¥9,211 ($1,316) a year on their children’s after-school education, which makes up 12.8% of the family income. 16.8% of families spend more than one-fifth of their income on after-school education.
China’s Newest Cram School Craze: Sex Ed Camps: With many Chinese schools reluctant to teach sex education, parents are signing their kids up for crash courses in the birds and the bees. Lessons still often focus on preaching abstinence rather than providing practical information about contraception, and this has left shocking numbers of young adults clueless about how to stop unwanted pregnancies. Since 2008, Chinese law has stated that fifth and sixth graders should learn about menstruation and wet dreams, but many still don’t. Last year, the national government began issuing certifications to sex education lecturers, and it has already issued more than 330 licenses.
Charts of the Day: China’s 100,000 Professional Gamers: Last year 630 million Chinese played video games, a ten-fold increase from a decade ago. This user base props up an industry that saw combined sales of over ¥94 billion ($13.1 billion) in 2018. Of the 100,000 professional esport gamers, 90% are 30 or below, 28% have at least a bachelor’s degree, and more than a third make more than the local average wage in the region where they work.
Elon Musk and Jack Ma Debate AI at China Summit: Elon Musk: “Computers are much smarter than humans on so many dimensions”. Jack Ma: “Computers may be clever, but human beings are much smarter. We invented the computer—I’ve never seen a computer invent a human being.” Musk also announced the launching of The Boring Company China on his trip and negotiated Tesla’s exemption from China’s 10% tax on car sales.
We Tested the Flying Taxi: The future of flying cars has arrived thanks to technological breakthroughs, including improvements in battery efficiency and internet capacity. Guangzhou-based Ehang is testing two-person, electric, self-driving aircraft which offers the potential to reduce human labour costs and the risk of human error. Regulations are still under discussion but EHang expects to see a commercial line of flying cars in Guangzhou soon.
Foreign Supermarkets Change Tactics in Tough China Market: Foreign clothing retailers, from Uniqlo to Nike, have gained a bigger market share than Chinese rivals because of their unique brands. But foreign supermarkets have often stocked the same noodle and sauce brands as their local rivals. Walmart, Costco and Germany’s Aldi are planning to change the lack of unique products by focusing on “private label” products, often imported from their home markets and by partnering with tech companies on ecommerce. At Aldi’s Shanghai stores, the most popular items include its branded wine and beer imported from Europe. Supermarkets are losing share to convenience stores where sales grew 21% in 2018 (up from 16% in 2017) versus supermarkets which grew about 2.5% (down from 4%) [FT Paywall].
Pernod Ricard Plans New Made-in-China Whiskey Brand: Pernod Ricard will soon add a new made-in-China line of malt whiskey to its portfolio as it doubles down on a country that’s driving its strongest earnings growth in seven years. The distillery will be in Sichuan province and will produce at least one new whiskey brand for sale in China and the rest of the world by 2023 at the earliest.
Domestic Tourists Set Their Sights on Long-Haul Destinations: The number of Chinese passengers in February – when the weeklong Chinese New Year holiday fell – grew by more than 20% year-on-year in 15 countries, including 10 in Europe. This surge has been attributed to the rising direct flights to long haul destinations, especially those to second tier cities. Of the 15 countries, the UK and the United Arab Emirates grabbed the top two positions, reporting growth of 39% and 28%, respectively. Unfortunately the rise isn’t being shared across all countries with declines in popular destinations such as Thailand and the US, dragged down by the Trade War.
Young Chinese Want ‘Green’ Beauty (But Who Will Give it to them?): 72% of respondents globally said purchasing “healthy or clean products” was important to them. In China, it was 90%. The number of KOLs mentioning green beauty brands on Chinese social platforms increased by 134% between Q1 of 2018 and Q1 of 2019. Access to green products is a bigger issue for Chinese consumers, and 38% of Chinese respondents agreed that “products are not readily available where I shop,” compared to an overall average of 27%. 37% of Chinese consumers reported having difficulty telling the difference between products that are “good” and “bad” for them.
Western Luxury Brands Suffer Chinese Backlash: Following last month’s geographic blunders from luxury brands, Versace’s positivity ranking has dropped to -11.6 (down 23.2 points), Givenchy 4.0 (down 23.2 points) and Coach fell to 0.2 (down 8.9 points) according to YouGov research. In addition, all three brands lost their local brand ambassadors so will find it challenging to regain lost ground in the short term.
McKinsey China Luxury Report 2019: Young Chinese luxury consumers have a less nuanced understanding of the heritage upon which the market traditionally trades according to McKinsey. They don’t fully comprehend the philosophy of heritage and the patience required to build it. They also demand a digital presence, although this ubiquity damages a brand’s exclusivity.