Here are this week’s news and highlights for China:
‘Small-Town Kids’ Shape Future of China’s Consumption: Between 2016-2020 around 50 million new households will enter the middle and upper classes, with half of them likely to be located outside China’s top 100 cities according to BCG. Similar research by Union Pay and JD found consumption in tier 3 and 4 cities grew 58% last year. Morgan Stanley forecasts that tier 3 and 4 cities will account for two-thirds of the increase in consumption between now and 2030.
Are China’s Retail Pop-ups a Bubble That’s Ready to Burst?: Pop-up stores in China have been growing at over 100% annually since 2015 with over 3,000 pop-up stores forecast to have launched by 2020. They are proving popular with online brands and platforms showing off their tangible products on high streets while directing consumers to their ecommerce stores. Online pop-ups for brands who want to test ecommerce is also becoming more common.
Key Takeaways from RECon China 2018: The big trends in Chinese shopping centres are: 1. Increasing incomes and declining saving rates are driving retail spending; 2. Shopping centres are increasing their fitness offerings, with sports-related tenants outperforming the average tenant; 3. Children’s categories are an important driver for shopping centres; 4. Outlet stores are moving from suburban to urban locations; and 5. Digitalisation of shopping malls continues.
Chinese Netizens Look Past Politics in Buying Japanese: Groups such as the 50 Cent Army pretending to be ordinary online users but who are paid by authorities to post disinformation or threats about brands from countries with which China is feuding have done Japanese brands a lot of damage over the years. Yet calls for boycotts are increasingly falling on deaf ears as Japan’s reputation for quality takes hold. After a low-point in 2012 when 30.2% of comments about Japanese cars were negative, just 2.4% of comments were bad last year. Muji is expecting record profits, fuelled by skin toner products with natural ingredients.
A $7 Trillion Debt Pile Looms Large Over Chinese Households: China’s household indebtedness as a percentage of GDP has grown from 10.8% in 2006 to 44.4% in 2016. It’s household debt-to-disposable income ratio of 82% could near 100% by 2020, closing the gap with the US’s 105% and Japan’s 99%. Residential mortgages account for 59% of China’s household debt, with 22% used to finance small enterprises and 19% coming from consumption loans such as credit cards and auto financing.
NetEase Challenges Chinese Ecommerce Giants On New Battleground: Own Label Retail: NetEase is selling products under its own label Yanxuan in the same factory as well-known brands. For example, a pair of boots identical to UGG are selling at $45 versus $200 for the originals.
Chinese Consumers Forecast to Spend More Time on their Phones than Watching TV this Year: Chinese adults will spend an average of 2:39 hours a day on their mobile devices, compared to 2:32 watching TV, eMarketer forecasts. Digital video has been the main driver of the 11% rise in mobile usage, which will account for more than 40% of total media spend. TV dropped 2%.
Chinese Smartphone Sales Suffer Biggest Decline Ever: Smartphone shipments in China have suffered their biggest decline ever, plummeting by more than 21% to 91 million units in the first quarter of 2018 compared with the same period last year. The last time sales were that low was in the forth quarter of 2013. Huawei and Xiaomi were the only brands to see increasing sales, with Apple dropping form forth to fifth place behind Huawei, Oppo, Vivo and Xiaomi.
Why Can’t China Make Semiconductors?: ZTE – one of China’s pin-up companies has been hand-strung by the US ban on selling it semiconductors for violating Iran sanctions. Huawei is under a similar investigation. China is currently the world’s biggest chip market, but it manufactures just 16% of the semiconductors it uses domestically. It imports about $200 billion worth annually, more than its oil imports. Although acquisition is the most logical path to develop its industry – a strategy that has worked for Japan, South Korea and Taiwan, China has made $34 billion in bids for US semiconductor companies, yet completed only $4.4 billion in deals since 2015. Things aren’t all grim though, after decades of failure, capital and investment are increasing and there is a greater will than ever.
China’s Bubble Tea Boom: Top 10 of Popular Milk Tea Shops in the PRC: Some would say pearl milk tea has done more in the past 15 years than what coffee did in China in 130 years. Consumers don’t just love bubble tea’s taste and texture, its also hugely popular due to the style and image of China’s new trendy tea house brands – an alternative to ‘Western’ Starbucks. New flavours, snacks, and sweets are being added to the menu such as Mango Cheese Tea and ‘dirty [chocolate] bread’ which both went viral. In contrast to coffee, milk tea is consumed virtually any time of the day.
80,000 Durians Sold in 1 Minute: Jack Ma Displays Magic of Ecommerce in Thailand: 80,000 Thai durians, including 40,000 pre-ordered in the two-days prior, and another 40,000 were sold within a minute of launching as Jack Ma wowed the Thais at a time when Alibaba is said to be investing $330 million in Thai tourism, agriculture and city monitoring products.
Mass Resignations at Chinese Owner of Australia’s Largest Dairy Farm Cast Doubt on Investment: There has been a resignation of Australian non-executive directors at the Chinese firm that bought Australia’s largest dairy farm VDL. It appears the promised investment in new infrastructure was not realised, lots of new jobs were not being created and that environmental improvements were not occurring – all promises which convinced the Turnbull government to sign off on the sale.
UK Supermarket Iceland Partners with JD.com to Launch Flagship Store in China: UK’s Iceland has partnered with JD to sell its delights cross-border including own-brand products such as biscuits, cereals and sauces along with a selection of other branded products including cosmetic brands such as Pulsin, Re-gen, and Soft and Gentle.
Off the Racks: In China, Push-Up Bras Are So Last Year: More and more young Chinese women are opting for comfort over cleavage. Online sales of wire-free bras first surpassed those of underwire bras in 2016, and last year reached almost three times that of underwire models.
Alleged Balenciaga Store Racism Angers Chinese Consumers: Angry Chinese consumers say they will boycott Balenciaga, and some daigou are pausing sales following a short viral video a Chinese man being man-handled in a Paris store by security guards – another example of how sensitive Chinese consumers are when something bad happens to a compatriot.
The Best Cars Unveiled at the 2018 Beijing Auto Show: This year’s Beijing Auto Show is being pegged as the most diversified auto show in the world with 1,022 rides being showcased for 2018. 105 world premieres, 30 Asia premieres and 64 concept cars feature, with EVs being the big theme of the year. Highlights include the new EV Hongqi, best known as the “Red Flag” limousine for Chairman Mao Zedong six decades ago, the MacClaren with hand-painted dragon door inserts in gold, Maybach’s first SUV, Volvo’s new EV brand Polestar, the customizable Maseratis, the MG X-Motion, Telsa’s Model 3 and the sturdy USSV G. Patton.