According to the Ministry of Industry and Information Technology, China will allow foreign ownership of some e-commerce businesses. The change, effective immediately, is being made “to encourage foreign investment and the development and competitiveness of the industry.” On its website the ministry said the move applies to “online data handling and trade handling services.” This is another effort by the government to bolster an industry that is one of the country’s c conspicuous growth sectors, one that is perfectly aligned with the government’s desire to promote the consumer side of the country’s economy. Source: Reuters
Consumer Sentiment Turns Up
After some negative and flat results in April and May, consumer sentiment in China turned up in June according to the monthly Westpac MNI China Consumer Sentiment Indicator. Compared to June of 2014, the consumer sentiment survey is well down, but since the steep drop in July of last year, things have remained pretty steady. The Indicator is “designed to track the degree of confidence and optimism consumers express on the economy.” As long as the number is over 100, it’s in positive territory. Source: Westpac MNI China Consumer Sentiment Indicator
Shifting Purchasing Patterns
The latest data from iResearch shows mobile sales growth of major proportions. First quarter year-over-year dollar volume grew 168.3%. They report that quarterly growth was even stronger reaching 218.3% in the fourth quarter of 2014. Of course that quarter includes Singles Day, which blows everything out of proportion. Still, we are talking about big time growth.
As the article in Jing Daily points out, the growth is having an effect on luxury brands that have been reluctant to enter the often discounted mobile sales market lest their brand value suffer. Even holdouts like Chanel and Fendi have caved in recent months. Such is the power of shifting purchasing patterns. Source: Jing Daily
Google Continues to Wedge its way into China
Key Google programs – search, Gmail, maps and Google Play – are banned from Mainland China. But Want China Times reports that Google is in discussions with several of China’s local handset manufacturers – ZTE, Huawei, Coolpad, Lenovo, Vivo and Oppo – to pre-install Google Play. The report says Google is willing to pay US$ 1 per pre-installed unit. For a company like Xiaomi that projects 80 million units, the money is a huge incentive in the thin-margin world of Chinese handset manufacturers.
Given the well established Android download sites in China and the government’s antipathy, it is not a slam dunk for Google, especially Google Search as it appears in Hong Kong (above). Baidu is the local search champ that the government wants to protect. Source: Want China Times
KFC’s weakened Position in China
Everything is not rosy for KFC in China. Though they continue to add stores – 171 in the January and February of 2015 – their profits are down significantly. Third quarter 2014 same-store sales were down 16% while the fourth quarter was down 14%. Not good. Lack of innovation is the suggested reason for the down turn most sited by analysts.
KFC was the first into China many years ago. Competitors like McDonalds followed and both have schooled many local entrepreneurs on the whys and wherefores of the fast food franchise business. Now many local competitors are having an effect on both stalwarts of the West. KFC, in particular, is an old dog. Even its attempts to localize the menu have been met with a yawn.
Lesson: It is good to have been first into the market, but your product has to remain fresh. ‘New’ is still one of the two great sales generators. But KFC is proving that a new menu itself is not enough. Source: Want China Times
Evidence for China’s Replacement Market Shift
China’s handset sales have officially moved into the replacement market phase. The evidence is convincing. New subscribers for 3G/4G phones increased by more than 13 million in May, up from a weak 7 million in April, while the number of total new subscribers fell by about 700,000. The overall market for mobile phone subscriptions has moved into reverse, but smartphones are still in growth mode. Those new smartphone subscribers are replacing their feature phones by the millions per month. 52% of mobile phones are now smart – up a full percentage point in one month.
A look inside the numbers at China Unicom’s tumble since February sees them losing nearly 9 million overall subscribers through May while they converted almost 3 million new 3G/4G subscribers. Those loses appear to have gone to China Mobile, which gained almost 8 million new subscribers in the same period. Sources: China Mobile, China Unicom, China Telecom
More Confirmation of the Romance between China and Mobile
Research by UBS’ Evidence Lab shows that when looking out ten years, Chinese consumers are likely to upgrade their mobile phones 22.6% faster than mobile users in the US. That is a new measure of China’s love affair with mobile that we have documented in the past. It also suggests good news for China’s current handset leaders: Apple, Nokia, Samsung, Meizu, Huawei and Xiaomi. The counter argument is that Chinese folks are assuming the feature/benefit gains of today will continue to be as alluring in the future. Given the next predictable technology leap is 5G and that’s set for 2020ish, an unaccounted for slowdown is likely. Source: Bloomberg Business
Walmart, the App
Walmart China has launched its Walmart To Go app in both iOS and Android formats. The launch is limited to Shenzhen province in order to allow for adjustment and upgrades based on consumer response. Ultimately, the app will expand throughout the country to offer Walmart products ‘anytime and anywhere.’
At the start, the app offers more than 10,000 items including 1,000 fresh/dairy/frozen foods as well as products covering grocery, health and beauty products and household chemicals. The assortment will expand as the Walmart To Go expands geographically. They have tied the app back to the brick and mortar stores by offering pick-up as well as multiple on and offline e-payment options.
President and CEO of Walmart China, Sean Clarke, said the company is “Uniquely positioned to integrate physical and digital retail seamlessly. We will continue to innovate both online and offline to meet the changing demands of our customers, and will be the most trusted omni-channel retailer in China.” Source: InsideRetail.Asia
Ford China is Selling Cars
Ford and its in-country partners sold 459,982 vehicles from January to May 2015, a 1 percent increase compared to the same period last year. That’s not bad, but when you isolate May’s 91,013 units and its four percent increase compared to May 2014, sales are a little more impressive. Source: Reuters
China is the Hope for All-Electric Cars
Chinese consumers are more willing to buy all-electric cars than US consumers. Two Carnegie Mellon researchers, Professor Jeremy Michalek and Ph.D. student John Helveston, have tried understand the reason for the difference.
They identify three factors that explain the differences.
- Two-thirds of Chinese consumers are first time car buyers who do not have a history with gasoline powered cars, making them open to the electric alternative.
- Whereas in the US everyone has a car, in China everyone has a bicycle. Often the bike is powered with a plug-in electric motor, which makes them more comfortable with the technology.
- Where range is the big issue in the US, it is less of an issue in China because they have a superior inter-city transportation system. People in the US jump in the car to drive from city to city while the Chinese jump on the train. Range becomes less of an issue.
This is important because China is now the largest car market in the world and they haven’t begun to reach saturation. Therefore, many millions more electric vehicles are likely to be sold there and that will undoubtedly influence car makers, which in turn will affect worldwide car markets. Source: Carnegie Mellon Podcast; Transportation Research, Part A – Policy and Practice