Consumer Prices Remain Steady

Consumer Price Index - Dec 2015

The steadiness of consumer prices in China contribute to continuing consumer spending – the solid, growing sector of the Chinese economy.  It is just not strong enough to overcome the lagging manufacturing sector, the cause of the contraction in the country’s overall economy.  A look back at the December 2014 transition to January 2015 suggests a coming drop in the Index when the January 2016 numbers are reported.  That remains to be seen.   Source: Trading Economics; National Bureau of Statistics China

McKinsey’s View of 2016

McKinsey Logo2

From McKinsey and Company, Gordon Orr’s analysis of China for 2016 is worth noting.  He makes the point that China’s economy is made up of many sub-economies.  That some are growing and will continue to grow and that some are fading and will continue in that direction.  Here is his breakdown:

  • The 13th five-year plan—expect solid GDP growth target, green initiatives, and action on productivity.
  • Fewer jobs, flatter incomes—and, potentially, less confidence . . . with white-collar workers being particularly vulnerable.
  • The maturing of investing in China: More options for Chinese investors and foreign investment managers in spite of the volatile mind-set of local investors.
  • Manufacturing in China is changing, not disappearing . . . with the winners becoming even more competitive on a global scale.
  • Agricultural imports are rising and rising . . . feeding China’s population brings opportunities for countries from Australia to Russia to the United States.
  • More centralization . . . the government will take back power as efforts to spread authority have failed.
  • Moving people at scale—more than peasants, the middle-class will be moving because China’s cities are bursting at the seams.
  • Movies in China: $$$ . . . a Chinese movie will gross $500 million domestically for the first time.
  • China continues to go global, with the United Kingdom as a new focal point . . . the love affair between the two countries will continue, but others want in on the action.
  • China will win soccer’s World Cup! Maybe not yet, but real money—domestic and foreign—is now flowing into the country’s soccer leagues.

Source: McKinsey & Co. webite

Strong Five-Year Projections from Boston Consulting Group

Consumption Growth

According to Boston Consulting Group’s latest report: “The New China Playbook: Young, Affluent, eSavvy Consumers will Fuel Growth”, three trends will drive the next five years in China: “upward mobility, a new generation of consumers and the continued rise of e-commerce.”

The report states, “The growing role of richer, younger, Internet-savvy consumers will boost demand for different kinds of products purchased through different kinds of retail channels. Indeed, this emerging consumer class will transform the structure of China’s economy.

eCommerce will grow almost seven fold by 2020 as compared to 2010 – from 3% of total private consumption to 20% and some 15% of these transactions will be cross-border.  And about 46 million of these new upper middle and affluent classes will come from fourth tier cities – a point we have made before.

The report hammered home its point with this warning, “Even though overall consumption will continue to boom in China over the medium term, targeting the wrong income segment, playing in the wrong categories, and being underrepresented in the fast-growing online channels will be a formula for slow growth.”  Source: InsideRetail.Asia

Government Tax Break Spurs China’s Car Market

GM in china

GM’s last quarter in China was one for the records.  November and December saw 14% growth each month. They lead the company’s Chinese growth for the year, which ended at 5.2% with sales of 3.6 million vehicles.  December alone racked up sales of 445,227 units.

After a weak summer, the fourth quarter turned around resulting from tax incentives by the government.  Cars with 1.6 liter engines or smaller got a tax break and that affected the market.  The company is using the tailwind to launch 13 new or updated models this year as it continues its corporate initiative to drive growth in China.  Source: Reuters

Bucking the Trend

Disney Shanghai Resort logo

Shanghai Disney Resort is opening in 2016.  It marks a moment when Disney will move into full frontal promotion in China.  A DisneyLife subscription will offer streaming of Disney and Pixar films, games, e-books, songs, merchandise and information about Disney parks and resorts… all for the up-front price of $125.

The upfront sale is interesting.  Our experience in China is that Chinese folks tend not to pay upfront for things, even with low-cost apps..  It could be that Disney is an exception because their name is already established and their products are pre-sold.  That separates its offering from an app that users are likely not to know in advance.  Source: TNW News

Alibaba’s 2016 Strategy Adjustment

Alibaba logo3

Last year we reported on Alibaba’s lower tier strategy that resulted in the establishment of 10,000 village level service centers and delivery services in 20 provinces.

At the beginning of this year, Alibaba Group CEO Daniel Zhang told gathered employees that, “We are going to consolidate and expand our current market, particularly by enhancing reputation, optimizing user experience and increasing our market share in first-tier cities.”  He went on to say, “Global imports, rural eCommerce, and top-tier cities are the three key battlefields for Alibaba in 2016.”

The adjustment is the emphasis on top tier cities.  A second headquarters in Beijing has been set up with the intention of building better service in the northern parts of China.  Source: InsideRetail.Asia

Crossing the Line: 800 Million Smartphone Subscribers

Mobile Carrier Data - December 2015

With the addition of 21 million new 3G/4G subscribers in December, China has moved passed the 800 million subscriber mark.  The conversion from feature phone to smart continues with the latter approaching 62% of all mobile subscribers.  Gains for the year 2015 were over 200 million new smartphone subscribers, a year-over-year increase of 33.9%.   Of the carriers, China Mobile is the clear leader with a 59.6% market share.  Sources: China Mobile, China Unicom, China Telecom

Get a Grip

China GDP

The US stock market has made a “correction” in the last several weeks in part because of China’s declining economy – so say the pundits.  One would think China is going into crash territory….until yesterday’s report that China’s growth for the fourth quarter was 6.8% and for the whole of 2015 was 6.9%.  Even if you do not believe the official Chinese numbers, the panic seems seriously out of proportion to the decline.  Even if the numbers are only half right, the Chinese economy is still the fastest growing of modern economies.

The International Monetary Fund projects 2016 growth at 6.3% – well down, but still not panic time when placed in context.  Time to get a grip, especially because the sector of the economy we care about – consumer spending – is the strongest part of the economy.  Source: Reuters

November Index Lowest in 17 Months

Leading Economic Index

These data represent the forecast of China’s near-term future economy as viewed from November’s perspective.  The number, 98.1, is the lowest since we have been watching, which started in July of 2014 when it was 100.2.  As a point of comparison, 100 is the base for these numbers that was established in 1996.  The historic low was 97.5 in July 1998.  This indicator is correctly pointing downward.  Source:; National Bureau of Statistics of China

Star Wars Opens Big in China

Star Wars

Star Wars: The Force Awakens’ opening weekend churned $53 million, the largest opening in China’s film history.  The first Star War was not released in country, but Disney’s promotion for this adventure, including an event featuring 500 storm troopers on the Chinese Wall, went a long way to raise interest.  China allows only 34 western films into the country each year.  This was a good choice.  Source: