Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Consumer spending in China might be in the doldrums, but a remarkable exception is the movie industry, says business analyst Ben Cavender in the Wall Street Journal. Visiting film theaters has become an affordable time out for friends and families of more tight-fisted consumers, he says. The planned expansion of the number of theaters to 5,000 per year shows the industry’s optimism. Also: domestic movies are doing better than the previously popular foreign competitors.
Consumer confidence is at a low, says business analyst Ben Cavender. But the current crisis has offered Chinese brands to improve their international positioning, and they will rise as winners internationally when China’s job market is back in three to five years, he adds, in the Sydney Morning Herald.
The Sydney Morning Herald:
China grew 4.7 per cent in the second quarter of 2024, slower than the 5.1 per cent predicted by economists as nervous foreign investors pulled a record £12 billion out of the country over the same period, in blow to President Xi Jinping.Some fear the world’s factory is now in overdrive as shrinking profits force producers to ramp up output just to get enough cash to service their debts.
Prices across the economy were shrinking at the end of 2023 and have only just started rising again, climbing 0.5 per cent in July from a year ago. “I’m optimistic that in three to five years, the job market will recover and be thriving again,” she says.Ben Cavender, managing director at China Market Research Group says it is clear that Chinese consumers have been tightening their belts.“Consumer confidence is low right now, and if anything getting lower,” says Cavender, who is based in Pudong, near Shanghai.
“Chinese brands took advantage of Covid to become much better at brand positioning and marketing, and can be as competitive or more competitive than foreign brands now in a lot of categories,” says Cavender. The industry, which has fuelled the explosive credit growth in recent years, has enabled an easier flow of credit to small and medium enterprises.
International tensions are another worry. Donald Trump has already vowed to escalate its trade war with China if he returns to the White House next year, while Kamala Harris said this week that as president she would ensure “America, not China, wins the competition for the 21st century”. Fears about overcapacity are creating more trade tensions, with many countries including the UK worried about being flooded with cheap cars in order to meet net zero targets.
“But in terms of getting things done, they can never win against the Chinese. So they are basically deluding themselves. The issue is that they don’t want to accept that China is going to be the largest economy.”
After a lackluster start of 2024, consumer expert Ben Cavender sees a modest improvement in consumer sentiment in China, he tells Reuters. He said some companies were thinking about how to grow their business in China again after years of holding off on investing, which was helping sentiment to improve.
Reuters:
Other analysts said the spending data could be a turning point, as consumption in China has struggled to recover since the lifting of COVID curbs, weighed down by a property market downturn, high youth unemployment and concerns over job security amid an economic slowdown.
“Our sense is that there is a small but growing sentiment within white collar jobs that the market situation is improving and this is also leading to greater willingness to spend,” said Ben Cavender, managing director at Shanghai-based China Market Research Group.
He said some companies were thinking about how to grow their business in China again after years of holding off on investing, which was helping sentiment to improve.
In February, average spending per trip during the Lunar New Year holiday, one of the biggest holidays, fell 9.5% versus 2019 according to Reuters calculations based off government data, prompting analysts to say that “consumption downgrading” was still happening.
China’s leading bubble tea makers including Mixue Bingcheng and Guming, each with thousands of stores, are rushing for an IPO in Hong Kong. A quick move now to collect capital might define the winners of the future, tells business analyst Ben Cavender to Reuters.
Reuters:
Mixue Group and Guming Holdings, China’s largest and second-largest freshly-made bubble tea chains by store count as of 2023, submitted applications for initial public offerings (IPO) in Hong Kong on Tuesday, Hong Kong Stock Exchange filings showed.
Mixue, which has roughly 36,000 stores, is looking to raise $500 million to $1 billion in its Hong Kong IPO, while Guming, with 9,000, is aiming to raise $300 million to $500 million, according to a source with direct knowledge of the matter…
Bubble tea is one of the few bright spots on the consumer front in China, with low-price operators doing particularly well.
According to a China Chain Store & Franchise Association study, the country’s 486,000 bubble tea stores were expecting a 40% rise in yearly sales in 2023, reaching a market size of around 145 billion yuan.
But with low product differentiation, competition has been fierce among players. Another industry giant, ChaBaiDao, also submitted its Hong Kong IPO application just a few months ago.
“I think there is a big rush to IPO right now, as generally speaking these chains have been expanding aggressively but have had to be willing to lose money to do so,” said Ben Cavender, managing director at China Market Research Group.
“Whoever can IPO the fastest and get to a stable operating position may be the winner over the long term.”
Jack Ma, Alibaba’s founder, surprisingly got public again by investing in “Hangzhou Ma’s Kitchen Food”, selling prepared food. Business analyst Ben Cavender looks at the new move at CNN. “Packaged meals are becoming increasingly popular,” he told CNN.
CNN:
The Chinese market for ready meals — food that is ready to heat and eat — was worth about 71.1 billion yuan ($9.9 billion) last year, up about 28% from 2018, according to Euromonitor International.
Demand for other types of pre-packaged food has also shot up, with the market for meal kits — food boxes that require simple assembly or cooking — nearly tripling from 10.6 billion yuan ($1.5 billion) in 2018 to 29.1 billion yuan ($4 billion) in 2022, Euromonitor data showed.
While the focus of Ma’s venture is not immediately clear, “this is a space that has a tremendous amount of room for innovation,” said Ben Cavender, managing director of China Market Research Group, a strategy consultancy.
“Packaged meals are becoming increasingly popular,” he told CNN. “Consumers in some cases are choosing these meals as they are trading down and not dining out as much, but are also choosing them for access to variety and due to time constraints.”
He said habits formed during the pandemic — to stay in and opt for convenient food options — as well as an economic slowdown in China were likely prompting more people to turn their attention to the space.
“If, instead, this ends up being more about sales of fresh foods like fruit, there is also demand for a wider variety of high-quality options and reasonable prices, and this is a space where his ties to e-commerce … would add value,” Cavender added.
Consumer confidence is at a new low, and businesses are not optimistic, says business analyst Ben Cavenderin the Jing Daily. Luxury consumption is especially suffering, he says. “However, brands will have to work much harder to resonate with consumers and get them to spend.”
Jing Daily:
The current economic challenges in China are marked by uncertainty and a lack of consumer and business confidence, noted Ben Cavender, managing director of the China Market Research Group. He points out that both small business owners and consumers are hesitant to spend or invest, a sentiment exacerbated by the government’s modest stimulus efforts.
“Any small-scale stimulus is essentially being saved by recipients who still await further signs of economic prosperity,” says Cavender. “With weak domestic and international demand, China grapples with an oversupply issue that proves challenging to address.”
Cavender believes that consumer confidence in China has reached a low point, causing individuals to postpone major purchases, seek more affordable alternatives, and limit spending to essentials.
“For luxury brands, this shift holds particular significance. Relying solely on exclusivity or high prices is no longer adequate; they must cultivate deeper connections with consumers to inspire trust and stimulate spending,” he says.
Young spenders in China, in particular, face mounting pressure to curtail their expenses. In June, the unemployment rate for urban workers aged 16 to 24 hit a record high at 21.3 percent. Furthermore, starting in July, the government stopped publishing breakdowns of unemployment data by age groups, adding to the challenge of assessing the employment situation for this demographic.
Cavender says: “Youth unemployment, coupled with unease about the real estate market, will both have effects. Gen Z consumers were already looking for a more authentic connection with brands before the economy slowed down and this trend has accelerated as their job prospects have waned.”
As such, being expensive or seen as a luxury brand alone is no longer sufficient. “The market is still there,” says Cavender. “However, brands will have to work much harder to resonate with consumers and get them to spend.”
After a slow start, after opening up after COVID-19, China’s economy is showing slow signs of recovery this autumn, says Shanghai-based business analyst Ben Cavender in the state-owned China Daily.
China Daily:
According to the most recent data by the National Bureau of Statistics, China’s official manufacturing and nonmanufacturing purchasing managers indexes both improved in September to 50.2 and 51.7, respectively, from 49.7 and 51 in August. The figures were above the 50-point mark that separates contraction from growth.
Ben Cavender, managing director of the China Market Research Group, said the Chinese economy is moving toward stabilization and is starting to show some signs of recovery.
He emphasized that China’s enduring strengths lie in its substantial infrastructure and manufacturing ecosystems, which are not susceptible to rapid decline. “The government’s emphasis on fostering development of new high-tech industries should also help to create avenues of growth for the economy in the coming decade,” he said.
Nevertheless, Cavender pointed out that the country faces significant demographic challenges, necessitating ongoing efforts to address issues related to local government and corporate debt management. “Right now, the name of the game is stability and doing whatever possible to assure consumers and private businesses that spending and investment are not too risky now, as this would unlock the spending we need to see to get back to normal,” he said.
China’s central government surprised this week by supporting its economy by a string of measures including cutting interest rates. Financial analyst Ben Cavender expects more action in the coming months, but meanwhile, foreign investors get jibberish and that might offer great opportunities for other economies like India, he adds at CNBC-TV18.
“When you talk about corporate entities that are seen as being in one way or another connected to China, you sort of start opening this can of worms,” said Ben Cavender, a Shanghai-based managing director of strategy consultancy China Market Research Group.
“There’s almost this automatic take by the US government that these companies are potentially a risk,” because of the inference that they could share data with the Chinese government, or act in a nefarious capacity, he added.
Huawei was the primary target of the political backlash a few years back. Now, consultants point to TikTok, and the ferocity with which it has been questioned by US lawmakers over its Chinese ownership and potential data security risks.
The thinking goes that since the Chinese government enjoys significant leverage over businesses under its jurisdiction, ByteDance and thus indirectly, TikTok, could be forced to cooperate with a broad range of security activities, including possibly the transfer of data about its users. The same concern could, in theory, apply to any Chinese company…
There is a potential risk of “racism or general xenophobia” clouding some perceptions of Chinese-led companies, Cavender said.
In 2020, former US House Speaker Nancy Pelosi erroneously called Zoom (ZM) a “Chinese entity” in a television interview, leading critics to point out that it was an American company…
According to Cavender, more Chinese companies are seeking to hire foreign executives, partly “because they realize that they need to have that diversity at the management level from an optics standpoint.”
That’s one of their “biggest asks right now,” he said.
Their annual results reveal that food suppliers booked high margins during COVID lockdowns. Pang Pang Xiang (China) Company Ltd was retained by the Shanghai government earlier this year to supply food, and citizens are now shocked by their profits. However, they won’t be able to continue, says Shanghai-based retail analyst Ben Cavender to Reuters.
Reuters:
The company was among those picked by the Shanghai government this year to guarantee the supply of agricultural products during the city’s lockdown of its 25 million residents between April and May.
“The typical supply chain during the lockdown was greatly disrupted, the result was a lot of pricing asymmetry as well as very high demand,” said Ben Cavender, managing director at China Market Research Group in Shanghai.
“This in turn allowed the company to dramatically improve margins over what they normally would be.”
Many Shanghai residents turned to community group-buying to procure essentials during the lockdown, where residents in one community band together to bulk buy groceries or meals from suppliers or restaurants.
Among COVID-related buying customers, group-buying contributed to roughly half of its revenue, with a gross profit margin of 74.7%, according to Pang Pang Xiang’s disclosure.
Pang Pang Xiang’s sales were impacted by the lockdown, however. Its revenue dropped 15% from a year earlier during the first five months, though gross profit jumped 35% due to higher margins.
Cavender said the firm’ margins were on the high end compared to what he has seen in the industry, and that the results will be very difficult to replicate going forward.
While the rest of the world is opening up, China has vowed to maintain its zero-COVID policy, with authorities continuing to stem outbreaks through lockdowns and mass testing. Some analysts believe the government will largely stick with the tough restrictions well into next year.
Unlike in the past, youngsters in China are unsure of what the future brings, and they have become more frugal, says Shanghai-based consumer analyst Ben Cavender, executive director of the China Market Research Group (CMR). to Reuters.
Reuters:
This newfound frugality, reinforced by social media influencers promoting low-cost lifestyles and sharing savings tips, is a threat to the world’s second-largest economy, which narrowly avoided contracting in the second quarter. Consumer spending accounts for more than half of China’s GDP.
“We’ve been mapping consumer behavior here for 16 years, and in all that time I’ve seen young consumers the most concerned,” said Benjamin Cavender, executive director of the China Market Research Group (CMR).
China’s “zero-COVID” policy — including strict lockdowns, travel restrictions and mass testing — has weighed heavily on the country’s economy. The government’s crackdown on big tech companies also had an outsized impact on the young workforce…
Stability has been the key issue for China’s policymakers this year, experts say, as President Xi Jinping prepares for a third term as head of state at next month’s congress of the ruling Communist Party.
“In the past, when there was an economic slowdown, consumers tended to feel that government policy would solve this problem very quickly,” said CMR’s Cavender. “I think the challenge right now is interviewing younger consumers who really don’t know what the future holds.”
“We will see some improvement in the back half of the year, but my concern is that it is not going to be quite as strong as maybe a lot of traders or investors might be looking to see. The government is going to take steps to try and increase spending on infrastructure projects and construction and that should help to some extent, but I think overall, we are talking about a fairly weak consumer market.”
“It’s totally unrealistic to think that we are going to see anything like the 5.5 percent that was originally forecast, I think we would be happy getting out of this year, seeing total growth for the year at anywhere above 3 percent,” he added.”…
“Cavender pointed out that it’s not realistic to expect China to continue to deliver a 7 percent growth given the base has grown huge. But he said the world won’t be able to do without China and it will continue to account for over 40 percent of the world’s commodities like refined metals. He also pointed out that, unlike other large economies, China’s central bank has the leeway to drop rates and loosen the monetary policy. Others have argued that it is tough for the PBOC to be dovish and cut rates as the series of rate hikes in the US will mean capital will rush out of China.”
…
“Recently, many homebuyers have protested publicly and refused to pay their mortgages on yet-to-be delivered homes. Cavender said the unwillingness to pay mortgages points to a larger problem. Many developers in China don’t have the funds to finish pre-sold projects, after the government, since mid-2021 has forced realty companies to pare down debt. The Chinese government has tried to appease consumers, said Cavender by forcing local bodies and banks to provide loans to real estate companies with high retain exposure.”
US fast fashion brand Forever 21 tries for the third time to get access to the China market. But Shanghai-based market analyst Ben Cavender wonders if the US brand and its Western competitors in fast fashion might succeed this time, he tells Reuters. “It will be difficult to claw away market share as most Chinese consumers either haven’t heard of the brand or don’t really know what it stands for,” he says.
Reuters:
Gaining and retaining market share, however, remains a tough task for mass market foreign fashion brands in China. Some, including H&M, have been plagued by controversy while others, including major sportswear companies Nike and Adidas have lost ground to local brands Li Ning and Anta in recent years.
“It’s clear within the fast fashion space there has been somewhat of a shift towards nimble domestic fashion brands, so if anything it is harder now for international fast fashion to compete here than in the past,” said China Market Research Group managing director Ben Cavender.
“It will be difficult to claw away market share as most Chinese consumers either haven’t heard of the brand or don’t really know what it stands for.”
