Speaker 1: China's consumers are a force to be reckoned with. It's
Speaker 1: the second largest market in the world after the US.
Speaker 1: Last year alone, Chinese shopp has spent about forty nine
Speaker 1: trillion yuan or about six point eight trillion US dollars. Now,
Speaker 1: policymakers want to harness that and grow the nation into
Speaker 1: a mega sized consumer powerhouse, as officials call it.
Speaker 2: But they have promised us for two decades now, and today,
Speaker 2: after rounds of stimulus measures, consumption in China still makes
Speaker 2: up only about thirty nine percent of GDP. That's far
Speaker 2: below the OECD average of fifty four percent. It's exports
Speaker 2: and industrial production that's still drive growth.
Speaker 1: So what's keeping consumers from spending? Should we even be
Speaker 1: waiting for a comeback or if things structurally changed? And
Speaker 1: how should we read into recent consumption trends that have
Speaker 1: skyrocketed stocks from bubble tea to gold and toys.
Speaker 2: You're listening to Asia Centric from Blooeberg Intelligence. I'm Katademitreva
Speaker 2: in Hong Kong.
Speaker 1: I'm John Lee, also in Hong Kong, and this week.
Speaker 2: We're taking a deep dive into the China consumer, how
Speaker 2: their shopping habits are changing and trends to watch. We'll
Speaker 2: sit down first with Katherine Limb, Senior analyst for Consumer
Speaker 2: and Technology at Bloomberg Intelligence, to unpack spending trends and
Speaker 2: how investors can pivot. Then we bring in ants And Bailey,
Speaker 2: head of Asia Pacific Consumer and Retail a KPMG for more.
Speaker 2: Catherine really pleased you could join us just to start.
Speaker 2: Where is the China consumer at today? Give us kind
Speaker 2: of the lay of the land, you.
Speaker 3: Know, I think we do have to be realistic that
Speaker 3: post COVID there has been changes in spending behaviors of
Speaker 3: Chinese consumers, not just within China but also abroad. Abroad,
Speaker 3: we've heard from so many different companies, including LVMH as
Speaker 3: well as Kiiren talk about tourists, particularly the traditional high
Speaker 3: spenders like those from the mainland, cutting back down on
Speaker 3: their spending when they are traveling and instead they are
Speaker 3: spending more on the experiences on some of the services
Speaker 3: rather than luxury goods. Coming back to China, we are
Speaker 3: seeing a repaturation of what I've just highlighted that instead
Speaker 3: of actually spending on the big luxury goods abroad, we
Speaker 3: are seeing them translate that into some of the premium
Speaker 3: tickets spending. You know, they don't mind spending a little
Speaker 3: bit more on premium toys, new gadgets, even on concerts,
Speaker 3: as well as domestic travel within the country.
Speaker 1: Yeah, Chinese mainland travelers and consumers were really big purchases
Speaker 1: of luxury items. What's the outlook for the luxury segment?
Speaker 1: Because these European luxury companies, they spent so much money
Speaker 1: positioning themselves for Chinese consumption, this is not.
Speaker 3: The first time they've actually seen the cycles come through.
Speaker 3: It is a structural change in the way the Chinese
Speaker 3: shoppers are spending. But let's not forget that for the
Speaker 3: luxury firms like LVMH Curring. The good news for these
Speaker 3: firms are that they have a very extensive array of
Speaker 3: luxury goods at different price points to which they will
Speaker 3: be able to actually capture the different demands and evolving
Speaker 3: changes and preferences of the shoppers, which they have done
Speaker 3: historically quite well in the last decade or so. And
Speaker 3: it is a cycle that I do believe they will
Speaker 3: come out of. It. Will we go back to the
Speaker 3: same kind of impulsive buying behavior that we have seen
Speaker 3: from the Chinese consumers prior to COVID. I doubt and
Speaker 3: I do think that the changes that we are seeing
Speaker 3: is structural and will stay for the next couple of years.
Speaker 3: Even as consumer confidence returns, we're not going to actually
Speaker 3: again see the impulsive buying and the splurging on very
Speaker 3: big ticket items.
Speaker 2: So, like you just said, if the consumer's not coming back,
Speaker 2: what is the consumer the China consumer look like, you know,
Speaker 2: five ten years from now versus pre pandemic, because I
Speaker 2: would think that analysts markets generally expect China's consumption to
Speaker 2: come back at some point.
Speaker 3: Yeah, good question, Katya, and I think that the easy
Speaker 3: way of selling to the Chinese consumer is over and
Speaker 3: retailers and brand owners need to be more thoughtful in
Speaker 3: their marketing campaign to be in a position to seize
Speaker 3: the wallet of these increasingly sophists dedicated consumer group who
Speaker 3: are going to social media to look at reviews and
Speaker 3: to share thoughts about their experiences. And the retail marketing
Speaker 3: campaign will now needs to shift to be more proactive
Speaker 3: in communicating a story which was what had actually bagged
Speaker 3: what we see for La Boubou, right, the toy had
Speaker 3: a story backed by a celebrity and then they were
Speaker 3: able to actually match it up with the scarcity demand,
Speaker 3: making certain collections exclusive, etc. Same thing for Laupugo, the
Speaker 3: heritage of the Chinese cultures being embedded into their pieces.
Speaker 3: This is not something that you see in Bulgari or Katier,
Speaker 3: but it is something that is coming through very strongly
Speaker 3: for the Chinese jewers. And this feeds into the nationalism
Speaker 3: that we have actually seen coming and getting stronger among
Speaker 3: the Chinese.
Speaker 2: Do you see that trend continuing, this nationalism as maybe
Speaker 2: a pushback as well to what's happening globally.
Speaker 3: Oh yeah, absolutely. We have heard Nike and our deaders
Speaker 3: setting up China only design centers, whereby they are now
Speaker 3: pushing for China only dedicated products and merchandise with features
Speaker 3: that resonate again with the Chinese consumers, which they will
Speaker 3: roll out in a bigger scale as we go into
Speaker 3: the end of the year. I think we are definitely
Speaker 3: seeing a lot more of the global retailers coming up
Speaker 3: with customized merchandise and services for the crowd. Look again,
Speaker 3: just to take a step back, young China, KFC Pizzahat,
Speaker 3: they have long started this. They have customized their menu
Speaker 3: for the Chinese taste.
Speaker 2: Do you know how just for our internationalists, how did
Speaker 2: they do that? Like what does a KFC meal in
Speaker 2: China look like?
Speaker 3: So do you know you get congy and porridged on
Speaker 3: damn menus? Right, Definitely McDonald's heads that as well. They
Speaker 3: have also had their version of bubble tea like just
Speaker 3: iced tea. It's a bigger thing than iced coffee. And
Speaker 3: they have a selection of coffee mixed with juice, which
Speaker 3: is a big thing in China, whether it's Fright Dolls,
Speaker 3: et cetera. Breakfast their breakfast selection is amazing.
Speaker 1: So on one hand, you've got a lot of global
Speaker 1: brands or a lot of global consumer companies catering to
Speaker 1: the Chinese taste. Then on the other hand as well,
Speaker 1: you're going to get a lot more homegrown companies that
Speaker 1: are going to go be successful at home and also
Speaker 1: potentially export overseas.
Speaker 3: Yes, talking about exporting overseas. Being here in Singapore as
Speaker 3: well as Malaysia, we've seen how Chagi Lucking coffee is
Speaker 3: now like within at least three kilometer in certain places,
Speaker 3: you'll find a Lucky point of sale somewhere, and they
Speaker 3: are now more prominent and more accessible than Starbucks.
Speaker 1: Catherine look consumption overall has been quite subdued that there's
Speaker 1: been some pockets that have done really well, and some
Speaker 1: of these companies' share prices have done really well. Like
Speaker 1: Lapool Gold, they sell a lot of jury that's done
Speaker 1: extremely well. That's obviously a high end. But on the
Speaker 1: other side of the spectrum, you've got I would say,
Speaker 1: like cheaper end goods like Laboubo dolls, although that become
Speaker 1: a bit more expensive recently, Bubble Tea as well. How
Speaker 1: should we read into these diverging signals.
Speaker 3: Firstly, I guess for the discretionary goods side, from jeury
Speaker 3: to toys, Lapool Goal has writ or not just increased
Speaker 3: demond for safe haven assets like Goal, they have also
Speaker 3: incorporated a lot of the heritage cultural features into their items.
Speaker 3: That's stood doubt. Definitely. It is a smaller scale dura
Speaker 3: in terms of the number of stores that they have
Speaker 3: in China relative to Chow Tay folk, which we are
Speaker 3: more familiar with in Hong Kong as well as in
Speaker 3: the southern part of China. As they gain popularity, Laupoo's
Speaker 3: growth trajectory definitely looks better than Chow Tai folk for
Speaker 3: reasons that you know, they're starting from a lower base
Speaker 3: now when it comes to the toys per se, the
Speaker 3: frenzy for La Boobuo continues. And I was just having
Speaker 3: a very interesting discussion with someone about like they do
Speaker 3: have friends who are bidding for more exclusive La Boo
Speaker 3: Boo series online, even though it has been marked up
Speaker 3: at least three or four times in some cases ten folds.
Speaker 3: But because they are exclusive, and ultimately the incremental amount
Speaker 3: that you are paying some start to less than two
Speaker 3: hundred R and B for instance, so it is not
Speaker 3: going to take a big hit on the wallet. It
Speaker 3: is still something that very affordable now to Bubble Tea.
Speaker 3: And when it comes to food services, that is evolving
Speaker 3: as we continue to see more e commerce platforms like
Speaker 3: JD dot com Mate one throwing in perks to drive
Speaker 3: online orders and then somewhat stimulating the consumption of these
Speaker 3: food services out there. So we are seeing different ways
Speaker 3: to which China consumption is being stimulated. In part, I
Speaker 3: do believe that, you know, through December, we will continue
Speaker 3: to see the e commerce platforms playing a very important
Speaker 3: role in this. So if we.
Speaker 2: Can dive into those dynamics a bit more, what is
Speaker 2: going on there is it sort of the same consumer
Speaker 2: who's purchasing the cheapla boo boo and the bubble tea
Speaker 2: and sort of what we call like small treats to
Speaker 2: keep people going and also purchasing higher end items like
Speaker 2: gold chains or jewelry. Or are these different demographics or
Speaker 2: is it sort of younger gen z who are driving
Speaker 2: the cheap trend and then maybe older people, older women
Speaker 2: driving the jewelry and other high end sales. Like, what's
Speaker 2: kind of really going on here?
Speaker 3: I love how you've actually put it that these are
Speaker 3: your sweet treats, but that the consumers are spending on.
Speaker 3: And particularly if you look at the population group between
Speaker 3: twenty to thirty five years old, which are the younger,
Speaker 3: more digital savvy population who are educated, being able to
Speaker 3: actually communicate to them through the digital platforms like social
Speaker 3: media and making it very convenient for them to spend
Speaker 3: via platforms and apps on their mobiles. When it comes
Speaker 3: to foot deliveries a set, it definitely resonates with this group.
Speaker 3: I would attribute denotable consumption trends to the gen Z
Speaker 3: from the millennials to the gen Z. I would say
Speaker 3: in that under forties bucket itself particularly against stressing that
Speaker 3: these are your tech savvy group that has actually right
Speaker 3: on the e commerce and digital weight in China over
Speaker 3: the last two.
Speaker 1: Decades, Catherine, A lot of investors are waiting for a
Speaker 1: big stimulus package to you know, restart China consumption. What's
Speaker 1: the outlook there, That's.
Speaker 3: A that's the million dollar question, John. What the Chinese
Speaker 3: government has already put into the market and will continue
Speaker 3: to invest based on what they have raised from the
Speaker 3: government bonds itself. It is pretty huge, and really the
Speaker 3: question right now is how much more can we expect
Speaker 3: in twenty twenty six, on top of what they have
Speaker 3: already put in for twenty two to continue to lift
Speaker 3: consumption or simply retail sales by another five percent in
Speaker 3: the next year to come. I do think that this
Speaker 3: is an unanswered question at this point in time, because
Speaker 3: it does mean that in order to get people to
Speaker 3: buy more washing machines or whether it's Huawei smartphones, the
Speaker 3: placement cycle has already been shortened to try and get
Speaker 3: consumers to buy a new handphone every month. I don't
Speaker 3: think that's going to be realistic right let alone like
Speaker 3: the bigger ticket home appliances, So I don't think that
Speaker 3: it is about the incremental money that they're pumping in
Speaker 3: to subsidize these purchases, but rather they have to find
Speaker 3: new means to stimulate the confidence for the consumers to
Speaker 3: naturally be inclined to spend.
Speaker 2: Do you have a theory for what the silver bullet is?
Speaker 3: I think the overall confidence level, and it starts really
Speaker 3: from not just concerns about the undercurrents when it comes
Speaker 3: to property market, but job security. These days, the confidence
Speaker 3: levels still remains very low. I think we are still
Speaker 3: seeing the aftermath of some of the downsizing that we
Speaker 3: have seen across the board in the Tierwan cities. For
Speaker 3: whether it is the financial sector where a lot of
Speaker 3: the more affluent Chinese population tends to be exposed to,
Speaker 3: that will likely reach a tail end sometime in the
Speaker 3: beginning of next year from what I'm gathering, and hopefully
Speaker 3: as it stabilizes, we're going to get the confidence built
Speaker 3: up into twenty twenty six, barring any unforeseen circumstances or
Speaker 3: changes to the macro environment globally.
Speaker 1: So, Catherine, We've discussed quite a lot of different products
Speaker 1: and services, but I wanted to say to get your
Speaker 1: ranking of where you think the strongest growth is going
Speaker 1: to come. We've talked about white goods, you talked about smartphones.
Speaker 1: There's obviously, like you know, big ticket items like cars,
Speaker 1: also like clothing, sports goods, like where do you think
Speaker 1: will be the sort of the star or best areas
Speaker 1: to look at in the second half.
Speaker 3: Sportswear is definitely one sector because there is still increasing
Speaker 3: awareness when it comes to health and fitness within the country,
Speaker 3: and we are seeing more outdoor activities and consumers themselves
Speaker 3: willing to pay more for more functional sportswear items, whether
Speaker 3: it's the clothing or shoes. So it is going to
Speaker 3: stay resilient, more resilient in my view than purchases of
Speaker 3: goal or jewelry as that could be influenced by some
Speaker 3: of the fluctuations that we see in goal prices. And
Speaker 3: I think that is a big question mark when we
Speaker 3: go into twenty twenty six.
Speaker 2: So does that mean that some of these companies might
Speaker 2: be in bubble territory. I mean, we've had more than
Speaker 2: two thousand percent stock rise in the Gold company we're
Speaker 2: just talking about. PopMart has been another big one. But
Speaker 2: if they're kind of driven by only one demographic and
Speaker 2: they're not sustainable. I mean, there's only so many gold
Speaker 2: chains you can buy or does that kind of imply
Speaker 2: that people should be rethinking some of these valuations.
Speaker 3: Yeah, so, Katia, I guess as we look to find
Speaker 3: out more from the companies on their strategies into twenty
Speaker 3: twenty six, if they stay put focusing on just La
Speaker 3: Booboo alone, without new ips to roll out in the
Speaker 3: next couple of years, without more innovative ways of selling themselves,
Speaker 3: whether it is true digital media, whether it is true movies,
Speaker 3: to actually strengthen their presence, Yes, you are right that
Speaker 3: these companies could actually stagnate in terms of growth, and
Speaker 3: if consumers find an alternative, we might actually see revenues
Speaker 3: or profits actually declining. In a case of jewelry, we've
Speaker 3: been focusing on goal as Laupu's official name has that
Speaker 3: goal element in it, but let's not rule out the
Speaker 3: possibility that they may go into non goal items as well,
Speaker 3: and it is really up to the company to decide
Speaker 3: how they want to actually expand their merchandise. Mix.
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Speaker 2: And we'rebec with Anson Bailey, head of Consumer and Retail
Speaker 2: in Asia Pacific for KPMG, and.
Speaker 1: We should tell the audience that Anson has brought something to.
Speaker 2: The studio, has a very special item.
Speaker 1: And Anson, for the listeners, what do you have there
Speaker 1: on the table.
Speaker 4: John, We have got la booboo a la booboo. We
Speaker 4: a white laboo boo. I did want to bring it
Speaker 4: into the studio just to point out that the Chinese innovation,
Speaker 4: the Chinese design is not always about the Chinese tech,
Speaker 4: but we're really seeing some big steps forward in that
Speaker 4: China consumption space but also the Chinese brands.
Speaker 2: And it's also an incredible example of consumer spending right now.
Speaker 2: Because Anson, we've heard these two stories and perhaps they're
Speaker 2: not mutually exclusive. So we spoke with Catherine about this
Speaker 2: idea that on the one hand, the China consumer is
Speaker 2: still not spending, still worried about the property market. Property
Speaker 2: market hasn't come. And then on the other you have PopMart,
Speaker 2: some jewelry companies and others really outperforming. So what's your take?
Speaker 2: How do you explain this?
Speaker 4: I think the general outlook is cautiously optimistic.
Speaker 2: Is it more cashas or is it more optimistic?
Speaker 4: Well, I think it is is perhaps a little bit
Speaker 4: more optimistic if you look at those retail sales. I
Speaker 4: think annual consumptions expected to rise by about two point
Speaker 4: three percent in twenty twenty five. But at the same time,
Speaker 4: it's not just about the consumption levels. It's also about
Speaker 4: the savings levels as well, because I think one of
Speaker 4: the things we should always look at and we always compare,
Speaker 4: you know, the US consumers with everybody else and the
Speaker 4: Chinese consumers. Those savings levels are much much higher in
Speaker 4: China than they are compared with the US. In China,
Speaker 4: now we're looking at four hundred and fifty million middle
Speaker 4: class consumers. Now I think that probably makes them the
Speaker 4: largest middle class groupings anywhere in the globe.
Speaker 2: But they have all of this in savings, but they're
Speaker 2: not spending the money. Is that what we're seeing now,
Speaker 2: you know, potentially not spending on those bigger items, spending
Speaker 2: on smaller items, and there's that sort of a negative
Speaker 2: sign about the economic outlook how people are feeling.
Speaker 4: It could be viewed as a negative sign, but I'd
Speaker 4: also say that, you know, let's have a look at
Speaker 4: things like automotive sales. I think if you look at
Speaker 4: the automotive sales, thirty one point four to four million
Speaker 4: vehicles that were sold last year. But then if you
Speaker 4: look at the EV share, the EV share is increasing significantly.
Speaker 4: I think it was forty one percent market share, and
Speaker 4: I think the sky's the limit.
Speaker 3: You know.
Speaker 4: I do think that if you look at the consumables,
Speaker 4: if you look at smartphones as well, you know, smartphones
Speaker 4: is actually experience and seeing a rebound. I think five
Speaker 4: point six percent of a rebound. So there are I
Speaker 4: think some things that are I would say quite positive
Speaker 4: out there in the marketplace.
Speaker 1: Yep. And so the government has launched a number of
Speaker 1: initiatives to try to get Chinese consumers to spend. They
Speaker 1: had their own version of Clash for Clunkers. They tried
Speaker 1: to get consumers to buy more white goods like refrigerators,
Speaker 1: washing machines, air conditioners. You know, what's been the impact
Speaker 1: of these government measures and does the government need to
Speaker 1: do more?
Speaker 4: I think the Chinese economy is like turning a massive tanker.
Speaker 4: You know, it takes time to turn things around. I
Speaker 4: think this stimulus has actually led to a few visible
Speaker 4: improvements in retail sales, but at the same time, there's
Speaker 4: only so much I think the government can do. I
Speaker 4: would say it goes very much down to the consumer sentiment.
Speaker 4: I mean, this whole US China trade war I think
Speaker 4: has really put a kibosh on that positivity, on that
Speaker 4: consumer sentiment. So it is going to take time.
Speaker 2: If we could talk about just going back to the consumer,
Speaker 2: You've done a lot of work in this space. If
Speaker 2: we could just drill down into the different types of
Speaker 2: China consumer that there are. You know, generally we've been
Speaker 2: hearing about a luxury a side pulling back. The Chinese
Speaker 2: consumers are becoming a lot more price conscious, a lot more.
Speaker 2: They're traveling less as well overseas, more internal travel. So
Speaker 2: could you tell us a bit about the different types
Speaker 2: of consumer or how you would maybe group them.
Speaker 4: The reality is that today we see several different personas
Speaker 4: on those Chinese consumers and equally individuality, you know, connoisseurship.
Speaker 4: These are all things that the Chinese consumers today, certainly
Speaker 4: those high end consumers, we really do see them leading
Speaker 4: the way. One thing that we have noticed in things
Speaker 4: like connoisseurship is that one of the person that's one
Speaker 4: of the personas So if we look at the connoisseurship,
Speaker 4: I think what we are going to see is that
Speaker 4: those Chinese consumers, they've literally gone to the next level.
Speaker 1: You're talking about connoisseurship in terms of like cars or
Speaker 1: watchers or wines or cigars like what.
Speaker 4: Yes, So basically, John, we're looking at you know, the
Speaker 4: fact is that those Chinese consumers today, one, they're incredibly
Speaker 4: well researched. Okay, they really really know the product inside out,
Speaker 4: probably a lot better than your sales associates. And so
Speaker 4: that's you know, one of the big challenges is as
Speaker 4: we of course try and drive the customer experience, you've
Speaker 4: really got to ensure that it's a very a deep,
Speaker 4: immersive in store experience as well for those Chinese, these consumers.
Speaker 4: So I think that's going to be a really key
Speaker 4: driver with regards to the future Chinese consumers but quite frankly,
Speaker 4: they have surpassed I think a lot of those Western
Speaker 4: consumers and the definitions. And it's interesting, John, you just
Speaker 4: mentioned about well they're not really traveling very much. I
Speaker 4: do think that there was.
Speaker 1: A COVID revenge travel.
Speaker 4: Yeah, so we did get the COVID revenge travel. Those
Speaker 4: Chinese consumers, I do believe that we are going to
Speaker 4: start to see a lot more travel. They don't forget
Speaker 4: China itself is open for business.
Speaker 1: What about the luxury makers? Do they have to start
Speaker 1: relying less on Chinese as traveling overseas and maybe just
Speaker 1: have more of their stores in mainland China.
Speaker 4: I think that's a good point, John, I think previously
Speaker 4: the Chinese consumers absolutely had to travel overseas for an
Speaker 4: amazing experience or to buy a particular bag. Today, what
Speaker 4: you do find is that there's a lot more availability
Speaker 4: in mainland China. Those Chinese high net worth individuals. I
Speaker 4: think that number is still growing. I think if you
Speaker 4: look at today and depending which reports you pick up,
Speaker 4: high networth individuals, around three point one six million holding
Speaker 4: combined one hundred and one trillion u N in investable assets.
Speaker 4: These are not insignificant numbers. It just goes to point
Speaker 4: out the maturity and how these Chinese consumers are evolving
Speaker 4: over time. And I really think that that is going
Speaker 4: to be a very key driver. We talked about four
Speaker 4: hundred and fifty million middle class consumers today. Now what
Speaker 4: should side all of us is what about in ten
Speaker 4: years from now? And I'm not just talking about the headwinds.
Speaker 4: And we've seen some significant headwinds in twenty twenty four
Speaker 4: and twenty twenty five, but let's say from ten years
Speaker 4: from now, perhaps that number the middle classes potentially it's
Speaker 4: going to grow to seven hundred eight hundred million. So again,
Speaker 4: you know, I would say to everybody here, of course
Speaker 4: we have to be concerned about today, but let's not
Speaker 4: lose sight of the big picture. Let's not lose sight
Speaker 4: of China in twenty thirty five.
Speaker 2: And that is a wrap on our China Consumer episode.
Speaker 2: You've been listening to Asia Centric from Bluebering Intelligence. I'm
Speaker 2: Katjudmetriva in Hong Kong.
Speaker 1: I'm John Lee, also in Hong Kong. This podcast was
Speaker 1: produced and edited by Clara Chin and you can find
Speaker 1: all our episodes on Apple Podcasts, Spotify or review Listen.
Speaker 1: Thanks for listening,