Online Payments & Sales Festivals Driving China's Consumption
In case you haven't heard, sales for Single's Day last Wednesday hit a whopping $14.3 billion. That's 60% year-on-year growth - a similar rate to 2014, but from a much larger base. The day epitomised Chinese consumers' dedication to online shopping, with none more committed than a lady in Chongqing who dramatically injured her husband as she thrust for her smartphone to browse the sales.
While many folks will be celebrating the grand display of consumerism, China's consumption rates are still much lower than their Western counterparts. However, events such as Single's Day illustrate how this is changing, signalled by consumption being the fastest rising segment of China's economy - 60% of GDP growth last half - and its biggest hope.
It should be no surprise that there is still plenty of juice in the consumption tank - consumers' incomes continue to rise at double figure rates, and very few Chinese have frightening mortgages to drag them down if times get tougher. Household debt is just 12% of GDP, while it's 95% in the US. Just 5% of Chinese aged 15 and over have a mortgage, standing at 16% of GDP, versus 120% in the US. Whilst some of those stats gloss over the fact that many family and friends provide untracked loans in China, they are typically less rigid than commercial banks in enforcing repayments.
China's high saving and low credit rates have caused many policy makers headaches, as they realise that consumption is the key to sustainable growth. This is reflected in the latest consumption-focused Five Year Plan, and many recent Government policies. Even Premier Li Keqiang is advocating fewer restrictions on overseas purchases to give consumers more options.
Whilst Government support is absolutely vital for any sector to grow in China, much of the spending is being driven by market initiatives such as Alibaba's alluring Single's Day Festival. With such promotions, the ease of paying for things is also energising sales. China used to be a cash society. Just five years ago, 80% of online shopping was paid for by cash on delivery. Now that figure is estimated to be well under 20%. Yet, they aren't paying with credit cards - some estimates put ownership as low as 8.2% - they're shopping using systems that have been developed to appeal to China's unique habits and preferences.
Alipay is the most popular platform, which processed an incredible 85,900 transactions per second at its peak on Single's Day. WeChat Payments is also becoming an incredibly popular payment tool, making up the majority of the 200 million users on Tencent's payment systems, helped by initiatives such as Lucky Money which among other things, allows simple splitting of restaurant bills which is so relevant in China's lunch and dinner sharing culture. Here are this week's news and highlights for China:
Chinese Consumers
What’s Keeping Chinese Consumers from Spending More
In recent years, Chinese household debt was about 12% of GDP compared with 95% percent in the U.S. Just 5% of Chinese over the age of 15 have mortgage debt, versus 33.4% in the US.
Give Chinese Greater Access to Foreign Consumer Goods, Premier Li Keqiang says
Beijing should "not place restrictions on their purchasing overseas or even shut out the world. We should give our consumers more options," says Premier Li Keqiang.
: FMCG growth slowed in Q3 to 2.7%, with most of the rise coming from smaller cities which are dominated by local brands. Tier 1 & 2 cities grew just 0.7%, with convenience stores the fastest rising offline channel at 6.5%. Hypermarkets actually declined 1.5% in big cities, while they grew 10.4% in smaller cities.
Ending China’s Currency Manipulation
Donald Trump's views on China and his policy should he become President.
Internet, Mobiles, Social Media & Ecommerce
Alibaba's shopping-mania continued with this year’s Singles’ Day reaching a stunning $14.3 billion sales, growing by 60% from last year. View China Skinny's infograph for the top selling brands, countries and its international inclination.
Alibaba Plans New Shopping Festival
: The soon-to-be-launched Spring Festival shopping event will focus on rural consumers. "We want villagers to celebrate Lunar Chinese New Year with seafood from New Zealand and wine from France," says Alibaba VP Sun Lijun. 8,000 villages bought goods on Single's Day, with the most expensive purchase being a ¥500,000 ($78,500) Porsche.
JD.com to Close C2C Marketplace to Curb Fakes
: Is it fakes or they just can't compete with Taobao in the space? The overall share of unbranded products on Alibaba's Tmall and Taobao marketplaces dropped 7% between 2011 and 2014, with beauty and personal care products showing the biggest decline - indicating how important trusted brands are in the categories.
Chinese Embrace Smartphone Swiping for Hair Cuts and Eels
Even China's wet markets and breakfast pancake vendors are accepting smartphone payments, with O2O (Online to Offline) forecast to grow 63% between now and 2017 to ¥42 billion ($6.6 billion), according to Credit Suisse.
1/4 China Smartphone Users Install Foreign Apps
The most popular foreign apps Chinese consumers are downloading are tools (31.0%), social communications (15.5%), travel (11.3%) and photography (10.1%).
Payments
Tencent’s Messaging Apps Reach 200 Million Users On Its Payments Services
Tencent's revenue grew 32% year-on-year helped by 60% smartphone games revenue growth to ¥5.3 billion ($830 million). Advertising revenue almost doubled to ¥4.9 billion ($769 million), with 65% coming from mobile ads. As of September, 200 million WeChat and QQ accounts have connected their bank accounts.
Food & Beverage
Major Urban Centres Lead China's Growing Demand for Meat
China spent $605 million on imported meat and offal last year, up 27.9% from a year earlier. China is expected to consume 100 million tonnes of meat by 2020, but will only have the capacity to produce 90 million.
Sainbury's Food is a Top Online Seller
Following Tesco's lack of success in the China market, Sainbury's entered China more cautiously last month - by testing the market on Tmall. Breakfast options are their top sellers including Red Label Tea, UHT milk and granola.
Chinese Tourists
Chinese Tourists from Second-Tier Cities Love France and Thailand
Better flight connections and looser visa policies are seeing Chinese tourists from lower tier cities increase. Proportionately, Tier-2 travellers love France, whereas Tier-1 travellers love the US, Australia and Germany.
Cars
'Made In China' May Be Fine For Volvo, But Not Lexus - Or Chinese Shoppers
Lexus pays a 30% duty on importing cars into China, rather than making them in the Mainland as it doesn't feel China has the expertise to manufacture them. Nevertheless, a recent J.D. Power study found Chinese-manufactured vehicles had fewer problems in the first few months of ownership - 105 per 100 vehicles - than American-made cars, which had 112/100.
That's the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing, research and digital advice and implementation.
