Coffee Marches on all the Tea in China

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Chinese folks drink a mere 2% of the world’s coffee.  But that is changing as consumption nearly tripled in the last four years, so says the US Department of Agriculture.  That’s faster than any other market that is tracked.

As a show of faith in China’s coffee future, Starbucks will be adding 500 new stores in each of the next five years adding to the 2,000 stores already in operation.  Starbucks CEO Howard Schultz has been quoted as saying, “I wouldn’t be surprised if one day we have more stores in China than we do in the US.” They have plenty of street corner locations available.

Following close behind is Dunkin Donuts, which plans to add 1,400 stores over the next 20 years.

Coffee consumption is expected to grow 20% annually according to the China Market Research Group.  They claim that women under 30 are the core of coffee’s growth in the market. Source: BBC.com

Strong Industrial Growth for July

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Of China’s industrial firms with annual revenue above $3 million, profits for July 2016 grew at the fastest rate in four months according to the National Bureau of Statistics, China. They jumped 11% to $78.4 billion in July contributing to growth in the period January through July 2016 of 6.9%.

Manufacturing profits grew 12.8% while the mining sector took a hit dropping 77%, which may be bad for the economy, but is probably good for the environment. Source: Reuters

Slight Tightening or Slightening

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Though the entire 13-month period prior to July sat below the magic line of 50, the gentle retreat back toward the negative here is seen as a contraction.  That sense is expressed by Zhong Zhengsheng, director of macroeconomic analysis at the CEBM Group who said, “The stagnation that followed tentative signs of recovery in July may have been caused by a temporary tightening of proactive fiscal policies as reflected by a significant slowdown in the growth rate of fiscal spending in July.”  Zhengsheng’s prescription in the light of this analysis is, “Downward pressure on China’s economy remains and government support to stabilize growth must continue.”  Source: Markit Economics

Contradiction

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An article in The Wall Street Journal pointed to a contradiction in the ad tech space.  On one hand programmatic buying has grown to more to almost $16 billion in 2015 according to eMarketer while on the other hand; publishers are balking at the fees charged by third party exchanges and they are pulling back.

The article noted a company called Operative Media, which offers an ad tech tool kit to publishers allowing them to manage their own advertising work flow, as an example of a new breed in the ad tech space.

mPoint is another of the new breed, it offers its MarketPlaceTM exchange as an advanced tool for publishers that wish to bring media control in-house and retain more of the revenue their supply earns.  Source: Wall Street Journal; emarketer

Lower Consumer Prices Move the Needle Up

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The August Consumer Price Index drops to match its lowest point in the last 13-months.  It sits below the 13-month average of 101.8 relieving any inflationary pressure on the economy and assuring that the consumer sector of the economy continues to move in a positive, upward direction.  Source: Trading Economics, National Bureau of Statistics, China

Jack Ma’s Ego Takes a Hit

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A couple weeks ago, you may have heard the earth rumble as Tencent passed Alibaba to become China’s most valuable technology company.  Tencent’s valuation edged out Alibaba $246+ billion versus $242+ billion.

A key driver is Tencent’s social platform led by WeChat, which saw 34% increase in active user accounts reaching 806 million.  Coupled with its powerful gaming presence, the company has become a force with which even mighty Alibaba must recon.  The company’s revenue jumped 52% while profit grew 43%.

And their gaming business is not resting on its laurels. It grew 32% over the same time last year and it saw revenue from smartphone games double for the second quarter. Growth of this sector of Tencent business is assured well in 2017 with its consortium acquisition of Supercell, the Finnish game giant.

Aside from their cloud services, the core businesses of Tencent and Alibaba do not compete directly – they’re only competing for king of the hill.  Source: CNBC

Approaching One Billion Smart Subscriptions

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If the 12-month average of more than 21 million new 3G/4G subscribers maintains through next month, China will have over one billion active smart subscriptions. August was the third consecutive month that beat the 12-month average with 24.3 million newbies. The continuing increases are driven by conversions from feature phones. Our estimate is that 25% of them are iPad or other non-phone subscriptions.   Sources: China Mobile, China Telecom, China Unicom

Live Streaming, China Style

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China’s new phenomenon is live streaming.  As with other things, the Chinese find way to do it differently than the rest of the world where Periscope and Facebook Live dominate.  In China it’s one of some 80 sites such as Inke that have grown up in the last year to be an alternative form of entertainment for millions.  And the live streamers get paid in the form of tips, the proceeds of which are shared with the site.  As with all new phenoms the hype is hard to extract form the real, but there is something going on here.

One young fashionista, Liu Xini, can gather close to 2 million viewers for her streams about style and her own clothing line.  Another young girl with the smile-making name of Ricey Chen claims to have earned $7,500 over 80 hours of streaming in two months.

On the application side, Inke claims 50 million downloads while a competitor, Douyu, claims 120 million users.  Apparently, personal live streaming is a thing.  Sources: CNN, Voice of America, TechCrunch

Derivative Effects of Booming Retail Sales

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This blog has documented the tremendous growth of China’s e-commerce market resulting from the convergence of the growing middle-class and its pent-up demand.  The binge buying shows no sign of decline in spite of the overall economic slowdown in the country.

A secondary boost to the Chinese economy comes from the logistics infrastructure that is required to support the sales, both online and off.  A recent Reuters’ story pointed out that “China’s logistics market reached $150 billion in 2015, led by an increase in so-called storage spending that includes warehousing, processing and packaging of goods.”  Investors have rushed-in during the last couple years to the point that in some areas there is over-capacity and warehouse rents are under pressure.  Source: Reuters

Consumer Sentiment – Movement within a Stable Range

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The Consumer Sentiment pattern has been up and down within a range from 110ish to 120ish since June 2014.  August 2016 sustains that pattern, though it’s slightly down from July.  The notable difference between this period and the years prior to June 2014 is that this period is less prone to wild swings.  Prior to June 2014 the range moved between 110ish and 130ish with the occasional 13 to 18-point jump in either direction.  The steadiness of the modern era reflects the maturation of the Chinese economy.  Source: The Westpac MNI China Consumer Sentiment