Economics — New Consumption Patterns in China – A Top-Down Approach
1. Consumption increasingly divergent
After the pandemic, total consumer goods retail sales slowed, the household consumption expectation index fell, and the increment in household savings rose yoy, pointing to rising willingness for defensive savings, in our view. In addition, growth in self-employed workers like freelancers (takeaway riders and ride-hailing drivers) and franchise store owners has picked up.
Apart from these macro characteristics, there are also other trend changes in consumption.1) Demand side: travel and ‘experiential’ consumption demand has been robust, the uptick in countryside consumption is greater than that in cities and towns, and growth in consumer staples is higher than that in consumer discretionary. 2) Supply side: retail sales value growth of enterprises above designated size has been higher than that of enterprises below designated size, and market concentration has risen.
2. Rational and sentiment-driven consumption becoming new trends
Consumption behaviors have ‘evolved’: consumers are attaching greater importance to the value-for-money attribute, and are increasingly professional and rational in their choices. With solid supply chains and diversified channels, consumers are more willing to buy value-for-money products. For consumer discretionary, especially durable goods, consumers’ requirement for quality is likely to rise; for consumer staples like food & beverage and daily necessities, consumers prefer choosing value-for-money products.
Consumers in the post-pandemic era are in pursuit of spiritual needs and emotional value. With the post-90s becoming major participants in consumption, growth in novelty-hunting and comfort consumption with affordable spending (like Zibo barbeque, Moutai-flavored latte, and lotteries) has rapidly increased; in addition, consumers are more inclined to pay for service and experiential consumption.
As China’s population is ageing, we expect healthcare consumption to see a structural rise, such as sugar-free beverages and supplements for health.
In addition, given the increase in per capita GDP in China, some similar structural changes in consumption may emerge, in our view. Take the consumption structural changes in Japan (a developed economy) as an example, we have noticed the following trends: 1) food: food consumption fell in general, with beverages seeing the strongest growth; 2) clothing: consumption of almost all categories decreased, and value-for-money clothing became the favorite; 3) healthcare: consumption of all categories rose, including medicines and medical supplies, equipment & services, with medical services having the biggest share in consumption expenditure; and 4) entertainment: consumption of leisure and durable goods like laptops and digital cameras was on the rise.
3.Which enterprises are more competitive?
In accordance with the above trends, share prices of enterprises with a focus on relative value and high dividends amid a low-interest rate environment have rallied. Let’s take the Japanese stock market as an example:
- By sector, performances of healthcare and personal care have stood out;
- By type, stock performance of consumer discretionary with value-for-money attributes (such as Asahi and Uniqlo) has outperformed that of Nikkei 225 Index by a fine margin;