The Chinese Consumer Boom Is Still To Come

If Wikipedia is right, China’s ‘Singles Day’ initially began as Bachelors Day back in 1993. The event grew from Nanjing University, where the graduating students carried the university’s traditions into society.

Initially only celebrated by men, it became a celebration of single people partying with their single friends. Which explains why it was known as Bachelors Day early on. To reduce the stigma of still being single when their schooling finished, universities established blind date parties.

The term Singles Day came about some years later because the date contained ‘four ones’.

Like any day designed to revere a particular part of the population — like mother’s day and father’s day — businesses in China spied a marketing opportunity.

And so the day that was an unofficial passage of sacred schooling traditions evolved into China’s biggest shopping day of the year.

However, this year’s Singles Day has just put America’s ‘Cyber Monday’ to shame.

Estimates for Cyber Monday this year (30 November) suggest American’s will blow a whopping US$3 billion (AUD$4.2billion) in the frenzied online sales.

The Chinese on the other hand, forked out a total of 91.2 billion yuan, or US$14.3 billion (AU$20 billion) in 24 hours.

Here’s the thing: that figure above, is just one tech retailer’s total sales in 24 hours.

That’s right. Alibaba [NYSE:BABA] brought in US$14.3 billion alone.

The Cyber Monday US$3 billion prediction is a cumulative total from all participating US retailers.

The Telegraph shows a time line of the spending at Alibaba in US dollars.

 

Minutes before lunch time, China had already spent more than the previous year’s total.

Interestingly, over half the sales — around US$9.8 billion (AU$13.7 billion) — came from mobile phones.

The total value of transactions smashed expectations, with research firm IDC estimating that sales would grow 52% to 87 billion yuan.

Instead, sales grew 60%, for just one company.

Other Chinese retailers launched their own sales. Although Alibaba are the only ones to have released the actual value of the day.

JD.com [NASDAQ:JD] announced it beat last year’s sales by 11.58am. And by 6.26pm JD.com had processed more orders than the past five Singles Days.

Interestingly, more than doubling the previous year’s sales did little for the Alibaba share price.

The share price started off well, at US$82.01 (AU$114.94). By the end of the day, the stock closed at US$79.79 (AU$111.83), down 2.05%.

It’s a similar story for JD.com. Early trade on Singles day saw JD shares falling 1.13%, from US$28.40 (AU$39.80) to close at US$27.88 (AU$39.07).

Rather than be giddy at the total value and volume of transaction, the market was more worried about the Chinese economy. With Bloomberg writing:

Some investors stayed focused on the health of the Chinese economy and the strength of the country’s consumers, who remain Alibaba’s lifeblood. “Singles’ Day was a big success for Alibaba,” said Gil Luria, an analyst at Wedbush Securities in Los Angeles. “However, I do not believe we can extrapolate from that strength to the entire Chinese economy.”’

In contrast, Alibaba’s chairman Jack Ma, said ‘The consumers that can create and lead demand will survive. In the next 15 years, China’s economy will be good.

Supporting Ma’s view is the economic numbers. Chinese retail sales growth for October was up 11%. This suggests that the People’s Bank of China (PBOC) shift from production to consumer driven economy is working.

The rise of the Chinese consumer

Now, I don’t fully understand the complexities of the Chinese economy or demographics. I leave that sort of insight to our resident emerging markets analyst Ken Wangdong, the editor of New Frontier Investor. You can find out more about Ken’s emerging market and Chinese investment strategies here.

However, on the surface, it appears that Chinese spending patterns are changing.

As the China Business Review pointed out recently:

In the past three decades, Chinese consumers’ shopping habits have changed dramatically as incomes have risen and new products and concepts have entered the China market. 

Generally, Chinese consumers develop shopping habits in their youth and keep these habits through adulthood. 

Planet Retail has found that the older generation generally maintains “traditional” spending habits, middle-aged Chinese oscillate between tradition and new trends, and the younger generation is becoming more Westernized and quality conscious.

The article then goes on to highlight the spending habits of certain age groups:

  • Frugal forties: The consumers who grew up during the Cultural Revolution (1966—76) and swing between traditional and modern spending.
  • Wealthy forties: They have the same background as the frugal forties but work for the government or large state owned companies. Therefore, they earn a little more and are willing to spend it.
  • Thirties: Most of these consumers are well educated and grew up with less government repression than their parents. They spend more and save less than their parents. This is the most important consumer group over the next decade as they will have their parents, their children and themselves to buy for.
  • Twenties: The children of the one child policy. Generally speaking they have the opposite spending habits of their parents. They like to spend money on entertainment, electronics and luxury items. They hardly save a thing, are impulse buyers and savvy online consumers.
  • New generation: The kids here are under twenty and are the most westernised generation. They like new products and are keen adopters of trends. While most of them don’t earn an income, they influence their parents spending decisions.

To put this into perspective for you, 57% of China’s population is under 39.

That means more than half of the population falls into the category of China’s biggest consumer group.

The point is, China’s consumer boom hasn’t come yet.

The Chinese are getting a taste of Western style consumerism, and they like it.

My bet is on the growing Chinese consumer base.

Regards,

Shae Russell

For Markets and Money

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Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.


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