China

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China’s Booming Electric Vehicle Market Expects Another Year of Great Strides

Sales of new energy vehicles (NEVs) in China reached a record 2.99 million units in 2021, increasing 169% year-on-year (YoY). The surge reflects China’s push to become a key nation in the automotive industry. Despite several prevailing challenges to the production and distribution of electric vehicles (EVs), the forecast for the sector in 2022 is more than promising.

 

Charging an electric vehicle

EVs Sales Continue to Reach Record Growth

China is, by far, the world’s largest market for EVs and the automotive industry. According to the China Passenger Car Association (CPCA), sales of NEVs more than doubled during the last two months of 2021, compared to 2020, resulting in full-year deliveries of 2.99 million units, or 14.8% of the new passenger car sales in China. About 75% of those cars were bought by individual consumers. The same fraction was also seen in cities where EVs don’t receive any registration incentives.

Sales of electric vehicles, a primary part of the “Made in China 2025” initiative by the Chinese government, are expected to reach 20% of the national new car sales by 2025, equivalent to more than 4 million units hitting the streets of China. China’s monthly NEV sales broke through 20% of market share for the first time in November and surpassed 22% in December.

Think tank ‘China EV 100’ forecasted that EV deliveries will hit 5 million units next year and climb to as high as 20 million by 2030. The think tank also speculated that if NEV sales can account for half of all new auto sales by 2030, emissions from cars, excluding the emission produced during the manufacturing, will peak by 2028.

Heated Competition from Old and New Players

Up to 200 vehicle assemblers and startups are currently competing in China’s NEV market. A small group of top market players is dominating the monthly sales. This group includes market giant Tesla, Warren Buffet-backed BYD, General Motors’ three-way venture SAIC-GM-Wuling, and newly listed startups NIO, Xpeng Motors, and Li Auto. The competition is expected to get more heated as newcomers join in, and foreign players get new freedom from changing regulation.

Chart showing electric vehicle sales in China in 2021

As of 2022, Chinese authorities will allow full foreign ownership of passenger car manufacturing in the country, replacing the previous mandate that foreign car producers must operate in China via a joint venture with a local firm and hold no more than 50% stake in the entity. China has gradually peeled back limits on foreign ownership in the automotive industry, waiving limits on new-energy vehicle manufacturers in 2018 and commercial-vehicle makers in 2020.

International automakers have already begun to strengthen their game. Toyota aims to boost NEVs sales in China by 50% to 2.7 million units by 2025, introducing over 30 models to the market. Meanwhile, Volkswagen is introducing its electric car – the ID.3, to the Chinese market, and Honda stated that all of its new models that will be added in China will be electric by 2030.

Increasing Attention from the Government

Beijing has played an enormous role in pushing the penetration of the EV market domestically, as it seeks to become the world’s powerhouse in the automotive industry. While the government’s central subsidy program for NEVs was set to expire at the end of 2020, it was updated to extend for another two years until the end of 2022. The purchase subsidies extension came as a relief, as the EVs industry in China narrates itself through the continuing disruptions caused by the ongoing COVID-19 pandemic and microchip shortage crisis.

In a meeting chaired by the Chinese Minister of Industry, Beijing has decided to accelerate innovations, products and standards in its zero-emission vehicles industry to “go global”. The government deemed 2022 a critical year for China’s new energy vehicle industry, during which they will speed up key technological innovations in the industry and promote relevant products and standards to “go global”, as stated by the industry ministry.

Authorities in China are paying increasing attention to any possible weak links in the supply chain, considering that domestic automakers heavily rely on imports for raw materials like cobalt and lithium and refrigerants that are used in a car’s heat-management system and the high-wear resistance bearing needed for electric motors. The government is expected to release further initiatives to strengthen the industry’s supply chain.

China has been a strong competitor in the automotive industry, replacing the US as the world’s top market since 2015. As the country races to hit its carbon emissions peak before 2030, EVs have been given extensive attention from the government and private sector alike. The growth trend in NEVs sales is expected to continue, and the market to be much more dynamic, as multiple companies up their game to compete for a sizable slice of the pie.


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    by Asia Perspective Asia Perspective No Comments

    Manner Coffee’s IPO Unveils Potential of China’s Coffee Shop Market

    In recent years, local Chinese coffee brands are emerging as strong competitors against the large foreign coffee chains in the country. The success of Manner Coffee highlights this trend and indicates a switch in Chinese consumers’ coffee consumption patterns, revealing new opportunities in China’s coffee shop market.

     

    Young people drinking coffee at an outdoor coffee shop

     

    Manner Coffee’s Planned IPO In Hong Kong

    Manner Coffee, a coffee shop chain in Shanghai, is preparing for an IPO in Hong Kong in 2022, to raise up to 300 million USD. Manner Coffee was established in 2015 as a roadside boutique stall on Shanghai street, targeting all customers with the price of each product ranging between 10 to 20 yuan (equivalent to 1.55 – 3.10 USD). Compared to Starbucks’ twice as high prices, Manner Coffee quickly became competitive.

    Manner Coffee attracts consumers due to its low price-performance ratio, exceptional quality, and chic design style. Such features are appealing to an increasing number of young customers and have helped the chain’s quick expansion. Their fast development has caught the attention of many big investors, including food-ordering start-up Meituan and TikTok owner – ByteDance. The coffee chain was valued at 2.5 billion USD in June 2021 and continues to show great growth potential.

    Despite the impact of the pandemic, Manner Coffee has built around 150 new stores between June 2021-October 2021, most of them in Shanghai. Now, with a total of over 300 stores, the company is planning an IPO for further expansion.

    China’s Flourishing Coffee Store Industry

    China is becoming a new hub for coffee chains and coffee consumption. The average growth rate of global coffee consumption is just 2%, which is close to market saturation. Meanwhile, according to data from China Coffee Association Beijing (CCAB), coffee consumption in China is growing at an annual rate of 15%. China’s coffee market overall is predicted to have a CAGR of 10.15% during 2021-2026, making the nation the fastest growing coffee market in the world. The market size of the coffee shop industry in China is also expected to grow steadily, the market is forecasted to reach 47.9 billion yuan (7.5 billion USD) in 2023.

    The market for coffee chains in China is concentrated with some main players: Starbucks, McCafé, Costa Coffee, and Pacific Coffee. Witnessing the intense growth in recent years, these brands are also accelerating their expansion in number of stores.

    Beijing, Shanghai, and Chengdu have the highest number of coffee shops in China. In 2020, on average, one new coffee shop opened every day in Chengdu. This has made the city home to more than 4,000 coffee shops, just behind Shanghai (7,000 – more than any other city in the world) and Beijing (4,500).

    One of the main drivers of this coffee boom is the Millennials and Gen Z’s thirst for new experiences. Young coffee enthusiasts are not only open to new coffee tastes and flavours, but they also want their coffee drinking experience to be original and stylish. This behaviour also explains the success of Manner Coffee and the investment flows that other coffee chain start-ups across China are receiving. In April 2021, Seesaw Coffee – a local pioneer of speciality coffee – received an investment of 100 million yuan (approximately 15.4 million USD) from the Chinese boutique tea chain HeyTea and its shareholders; K Coffee and COFFii&JOY are backed by Yum! Brands – the owner of KFC, Pizza Hut, and Taco Bell in Asia; after its IPO in 2020, Peet’s Coffee – headquartered in San Francisco – successfully opened over 40 stores in China during 2021, despite the pandemic.

    Market Trends and Opportunities

    In parallel with the increasing purchasing power of the population and the growing interest of the young generation, the hype on coffee chains in China will continue to persist, especially in urban areas. Another rising trend fueling this thrive is the cooperation between tech businesses and coffee chains. The coffee shops mainly target a younger consumer base, thus technology businesses consider this an opportunity to promote services such as video games and streaming; these B2C interactions help increase usage rates for both parties. To name some notable collaborations, Tencent opened an e-sports coffee shop with Tim Hortons; ByteDance plans to partner with Manner Coffee to reach celebrities on Douyin (Chinese version of TikTok) to promote products; Alibaba has a successful collaboration with Starbucks and Alibaba’s delivery company Ele.me, where they enable delivery of Starbucks beverages to customers.

    In general, although highly competitive, the fast-growing coffee shop market in China opens up huge opportunities as the standard of living improves, the adventurous young generations seek new experiences, and collaborations between tech giants and coffee chains continue to grow.


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      by Asia Perspective Asia Perspective No Comments

      The Regional Comprehensive Economic Partnership (RCEP) promotes connectivity among economies in the Asia-Pacific region

      The Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal, officially took effect on January 1, 2022, targeting a market of 2.2 billion consumers.

       

      RCEP 2022

       

      RCEP Overview

      Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) among 10 ASEAN member countries and an additional 5 countries: Australia, China, Japan, South Korea, and New Zealand. RCEP was signed in Hanoi, Vietnam on November 15, 2020, aiming to form the East Asia Free Trade Agreement (EAFTA) and the Comprehensive Economic Partnership in East Asia (CEPEA).

      Map showing RCEP members

      The 15 members of RCEP accounts for 30% of the world’s population (2.2 billion people) and 30% of the global GDP (26.2 trillion USD), forming the largest trade bloc in history. RCEP is the first free trade agreement between China, Japan, and South Korea, three of Asia’s four largest economies.

      Table comparing RCEP with major FTAs

      As of November 2, 2021, 6 ASEAN countries and 4 of the partner countries, including China, Japan, Australia, and New Zealand, sent their ratification of the RCEP Agreement to the General Secretary of ASEAN. On this basis, the RCEP Agreement officially took effect starting January 1, 2022. RCEP has two major changes compared to previous FTAs: consolidated Rules of Origin (ROO) and tariff reductions. Both will have positive impacts on trade within the region and will likely attract multinational corporations into the bloc.

      Enhance Trade with Accumulative Rules of Origin

      The agreement’s accumulative ROO is the RCEP agreement’s biggest accomplishment. A good will be considered to meet the ROO requirement if it meets just one of the following three conditions: the good is wholly obtained in a member country; the good is produced solely from materials originating in one or more member countries; the good is produced from non-originating materials that meet the requirements of the Item Specific Rules. For example, cotton from China processed in Vietnam, under the new cumulative ROO, will be deemed to have originated in Vietnam when Vietnam exports the final product to another RCEP country. In general, the RCEP brings together all the original rules of origin outlined in the ASEAN-Plus-one and other bilateral preferential trade arrangements (PTAs). Thus, businesses will only need one ROO when trading within the bloc.

      Accordingly, the RCEP creates huge benefits to some key export industries of its members, for example, Vietnam’s textile and garment industry. The previous FTAs which Vietnam had signed with Japan: VJFTA and AJCEP, both required two-step rules of origin: the fabric had to be produced in the ASEAN country or in Japan to be eligible to receive tariff preferences. With the new RCEP Agreement, Vietnam manufacturers can import fabrics from anywhere; as long as the fabric is then cut and sewn in Vietnam, tax incentives will be implemented when exporting to Japan. Vietnamese exports to any of the member countries of the agreements will now be more time- and cost-efficient. Other industries such as footwear, automobiles, agriculture, fisheries, and telecommunications will also enjoy similar advantages with the new RCEP.

      Overall, the relaxed, consolidated ROO will reduce costs and enhance global value chain activities for any company that has supply chains spanning in Asia. Multinational companies that would like to move parts of their production to Asia will also find it easier to establish supply chains in the region.

      Benefits for China with Tariff Abolition and Reduction

      The RCEP will eliminate tariffs and quotas on more than 65% of traded goods, improving market access. The member countries agree to reduce or eliminate customs duties imposed on goods by approximately 92% over 20 years. Some tariffs will be eliminated immediately, while others will be phased out gradually over 20 years. However, this does not necessarily imply extensive tariff abolition for all member countries, as more favourable trade agreements already exist between some of the member countries.

      Among the countries, China is the one that will benefit greatly from this agreement. RCEP members are all important partners of China. In the first nine months of 2020, trade turnover between China and its member countries amounted to 1.055 billion USD, accounting for about one-third of the country’s total foreign trade turnover. With RCEP, 85% of Chinese goods will enjoy zero tariffs when exported to RCEP countries. Further on, a total of 98.2% of Chinese products will be granted zero Australian tariffs in the long run. Overall, the share of trade with free trade partners is expected to increase from 27% to 35%, and China will have a total of 19 free trade agreements with 26 partners.

      Thanks to RCEP, China can also establish its first free trade agreement with Japan. During the first three decades after China’s reform and opening, Japanese investment in China was mainly in the form of “re-exports”, meaning that Japan invested in manufacturing in China, to then export those products to other countries. With RCEP, preferential tariffs will be immediately applied to 57% of Chinese goods exported to the Japanese market. Therefore, Japanese investors who are eager to switch from re-export investment to investment focused on the China market can promote this strategy further with RCEP.

      In general, global partners and investors can benefit from a bigger market, more flexible supply chains, lower transaction costs in RCEP countries with this new partnership.


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        by Asia Perspective Asia Perspective No Comments

        China’s Services Sector Receives Extensive Government Support

        China’s service sector plays a vital part in the country’s economy. In 2020, the services industry accounted for 54% of China’s GDP and 60% of its total economic growth. Starting with Beijing, China has issued multiple initiatives to help foster the growth of the service sector, including adjusting several regulations related to foreign investments in the industry.

         

        Chinese IT engineer working in a server room

         

        China’s Service Sector

        Replacing Agriculture and Industry, Services became China’s largest sector by GDP composition, contributing 54.52% of the country’s GDP in 2020. China’s service sector is comprised by multiple industries, including warehousing and transport services, information services, securities and other investment services, among others.

        Graph showing China's GDP composition over time

        The health of the industry is measured by two Purchasing Managers’ Indices (PMIs). One PMI is released by the National Bureau of Statistics measuring the sentiment among large services firms, many of which are state-owned. Another PMI, produced by Markit for Caixin magazine, mainly measures sentiment among smaller, mostly private firms. A reading above 50 indicates growth in the services sector and vice versa.

        China’s official non-manufacturing PMI, which measures the sentiment among services and construction sectors, dropped to 29.6 in February 2020 amid intensive pandemic lockdown. Meanwhile, the Caixin/Markit services PMI fell to 26.5 in February from 51.8 in January 2020. Both PMIs recovered to above 50 in the following months. A shorter dip in non-manufacturing PMIs was recorded in August 2021, due to another COVID-zero lockdown that severed multiple business and social activities.

        Graph showing China's official non-manufacturing PMI

        Expansion of Chinese Services Sector Spearheaded by Beijing

        Targeting Beijing, multiple policy changes have helped improve the market accessibility of China’s service sectors. Beijing has previously announced four different rounds of service industry openings – in 2015, 2017, 2019, and 2020. The New Round of Service Industry Expansion and Opening up Comprehensive Demonstration Zone Work Plan was delivered in September 2020. The 2020 Work Plan is comprised of 120 policies and measures aiming to enable the gradual opening of Beijing’s service sectors.

        Nine key service sectors were selected to undergo reforms to relax market access and expand the development of existing industrial parks or ongoing institutional and supply-side reforms. The financial services industry has received the most attention with 26 new policies. Measures under this sector include either relaxing market access restrictions or optimizing the market environment in which businesses operate.

        Table showing Beijing’s service industry reform work plan policies for 9 key service industries

        Ease of Restrictions on Foreign Investments

        On October 18, 2021, China’s State Council announced that it had permitted Beijing to temporarily adjust certain regulations to enable more access to areas of the services sector for foreign investors, including the embattled education sector. Foreign investors would be able to participate in for-profit adult education and vocational training institutes.

        Table showing highlighted temporary adjustments to services sector regulations in Beijing

        The adjustments in regulation will allow foreign investors to participate in Beijing’s thriving service sector by expanding access to previously restricted areas. The equity cap on internet service providers will ease foreign telecom companies’ entry into Beijing. Foreign operators in the education services sector will receive a legal pathway to enter China, while foreign tourist agencies will be able to operate overseas tours for Chinese tourists.

        China’s services sector has been playing a dominant role in the economy, with its share of GDP higher than the primary (agriculture) and secondary (industry) sectors. The service sector is unique due to its dependence on soft labour factors such as expertise and innovation. Because of this, it is widely considered that an open and transparent business environment, that allows cross-border connectivity of information, data, capital, and personnel, is the foundation for the growth of the industry. While there are multiple areas within the services sector that will remain off-limits, it can be expected that China will further adjust its regulations to broaden foreign investors’ access in the field.


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          by Asia Perspective Asia Perspective No Comments

          The Multifaceted Impact of China’s Plan to Impose Property Tax

          In October 2021, the Chinese government has decided on rolling out a pilot property tax in some regions within the next five years, before proceeding with formal legislation. Under the scope of “common prosperity”, the government aims at narrowing the wealth disparities that have been partially caused by the large gaps in homeownership. However, the socio-economic reform plan has ignited much debate on its possible impact.

           

          Residential buildings in China

           

          China currently does not have a comprehensive property tax in place. A property tax has been pondered on by Chinese leaders since 2003. However, concerns about the tax’s potential damage on property demand and house prices, which would eventually trigger a fiscal crisis for local governments heavily dependent on land sales as income sources, halted the idea.

          Within the last two decades, only Shanghai and Chongqing have trialled property taxes between 0.4% and 1.2%, targeting mainly second homes, luxury properties, and purchases by non-residents. The tax did not reap large benefits for the two municipalities, accounting for only 5% or less of local tax revenue in 2020. Meanwhile, more than 20% of the Chinese local and regional governments (LRGs)’ revenue comes from land sales to real estate developers.

          Chart showing land sales as percentage of provincial revenue in 2020

          According to Xinhua, the new property tax will be more extensive than its previous trials. The tax will be applied to both residential and non-residential property, as well as land and property owners. The only exception from the new tax is the legally owned rural land where residences are built on.

          The property sector plays an important role in China’s economy. Property accounts for 70% to 80% of household wealth in China and drives approximately 10% of household income. Over 90% of households in China own at least one home, and over 20% of which own multiple properties.

          China’s home prices have soared by more than 2000% since the privatization of the housing market in 1998.  The unstoppable rise in prices has also sparked speculative purchases and frenzied construction, funded by massive borrowing.

          China’s Property Market Is Representative of Its Growing Inequality

          The income inequality in China has increased over the last few decades. The top 10% of the population earned 41% of national income in 2015, a wild rise from 27% in 1978. Meanwhile, the earning share of the lower-income half fell to about 15% from 27% in 1978 (Piketty, Saez and Zucman (2019)). China ranked second among the world’s top economies in 2020 in Gini coefficient – a measurement for inequality from 0 to 1, with 0 being perfect equality.

          Graph showing Gini coefficient for top economies

          Property ownership is the biggest driver of regional disparities, the urban-rural divide, and inequality between urban households in China. The sector’s overloaded speculation has pushed up housing prices, widened the wealth gap, and suppressed residents’ desire to spend money elsewhere.

          “Property tax in China is much more than a wealth distribution from rich to poor, but from older generations and high-tier city residents to the rest.” (Larry Hu, chief China economist at Macquarie). China’s privatization of the housing market in 1998 enabled older generations to purchase houses and apartments at a lower cost and to accumulate a larger share of property than younger generations. In recent years, the soaring prices have created an affordability crisis, especially among millennials.

          The Multifaceted Impact of a New Property Tax

          The new property tax would pose a great impact on the Chinese economy in both the short- and long-run. Pressures on the property sector and governmental revenue may significantly impact the country’s long-standing economic growth. At the other end of the spectrum, the property tax is expected to bring long-term sustainable benefits to both the local governments and its people.

          1. Short-term pressure on the economic growth

          Opponents caution that the property tax will likely chill the market and significantly shortcut China’s economic growth. According to Yue Su, principal economist at The Economist Intelligence Unit, if there are simultaneous property dumps, that might slow the introduction of property tax and increase the ability of individuals to apply for exemption (CNBC). The government will need to weigh the economic and social consequences of any moves on the real estate market.

          2. Housing bubbles prevention

          Proponents say the tax will prevent housing bubbles from getting perilously larger. The decline in the appeal of property investment could also divert private capital to other sectors, such as high-tech supply chain management and consumer services, which subsequently helps boost domestic consumption.

          3. A long-term decline in interest rates

          It is also expected that the tax, once introduced more broadly, will lead to a long-term decline in interest rates as construction of new homes will likely reduce and provide less support to credit creation, according to Hongta Securities Co. The real estate sector has been the most important driver of credit creation in the past. Li Qilin, the chief economist at the brokerage, said in a report on October 24, 2021, that the local governments have used land as a key source of collateral to borrow money and fund infrastructure, which in turn drove up home and land prices.

          4. Sustainable revenue for local and regional governments in the long run

          According to research group Capital Economics, an effective tax rate of 0.7% of the total property value would have generated 1.8 trillion CNY (282 billion USD) last year in China, compared to 1.6 trillion CNY that local governments generated in net revenue from land sales minus billions of dollars in land transfer expenses.

          Aside from closing an expanding wealth gap, the property tax would help stabilize China’s fiscal economy in the long run. However, the threat of an immediate sharp shock on the economy remains. The government will need to take immense caution as it rolls out the taxation policy to avoid hurting its citizen and economy.


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            by Asia Perspective Asia Perspective No Comments

            Singles’ Day In 2021 Sees Emerging Trends in Chinese Retail Landscape

            The world’s biggest online shopping day, Chinese Singles’ Day, is coming closer. The shopping season has witnessed significant sales rise every year since its first celebration. Singles’ Day in 2021 will likely be no less impressive, as domestic and international demands grow and leading retailers bring further innovative sales strategies.

             

            Young Chinese woman shopping online in a cafe

             

            Singles’ Day is an unofficial Chinese holiday that turned into a massive shopping season by Chinese e-commerce giant Alibaba on November 11, 2009. Over the years, what used to be a one-day event transformed into a month-long bargain-hunting frenzy with pre-event promotions starting as early as October 17.

            In 2020, over 250,000 brands (of which 31,000 were from overseas), 5 million online retailers, and 800 million consumers participated throughout the shopping festival. Despite the ongoing COVID pandemic, Singles’ Days sales reached record-breaking amounts. In 2020, Gross Merchandise Value (GMV) during the whole running period of Singles’ Day promotions was 860 billion CNY (US$133 billion), almost double that in 2019. US’s largest shopping weekend, Black Friday and Cyber Monday, fades in comparison to Singles’ Day.

            Graph showing China Singles' Day GMV vs. USA Black Friday

            2021’s Singles’ Day has been equally promising. Alibaba Group Holding Ltd. kicked off its promotions for the annual Singles’ Day shopping festival on October 20. Alibaba’s subsidiary, Taobao, experienced a 20-minute system crash on the day, attributed to heavy traffic generated by “overenthusiastic” consumers. China’s top live streaming salesman, Li Jiaqi, sold goods worth US$1.9 billion on Taobao’s marketplace on the day. Another top live-streamer, Viya, sold about US$1.25 billion worth of goods in a show that lasted 14 hours.

            Emerging Trends in Chinese Singles’ Day

            According to Bain & Company’s recent survey of 3,000 Singles’ Day shoppers in 2020, 95% of the group stated their intention to participate in the event again in 2021 while over 50% said they were planning to spend more than last year. Only 8% said they were planning on reducing their spending level. The average expected expenditure during the festival per customer is US$329, where women are more likely to spend more than men.

            Increasing Participation in Lower-Tier Cities

            In recent years, there has been a strong e-commerce penetration rate of lower-tier cities in China, which are expected to deliver a 34% GAGR during 2019-2021F, according to DBS Asian Insights. Tier 3 cities and below are expected to account for 43% of China’s e-commerce retail GMV in 2021F, up from 38% in 2019. The main drivers for this growth are the rising rate of online penetration and increasing consumption power.

            Graph showing China E-commerce Retail GMV Breakdown

            Global Trends in Singles’ Day

            Data from advertising company Criteo show a 600% increase in sales in Malaysia on November 11, 2020, compared to the month before, while Thailand reaped more than a 300% increase in sales. The whole Southeast Asia region recorded a spike in sales growth on the day. Australia has its own shopping event, Click Frenzy, which happens one day before Singles’ Day. The sales growth on Singles’ Day 2020 in Australia was close to that of Click Frenzy with a 46% increase over the average of October. LATAM countries also witnessed significant sales growth on Singles’ Day. Sales rose by 127% in Mexico and 49% in Brazil on November 11, 2020.

            Graph showing November 11 sales spikes worldwide

            The event also had a strong foothold in European countries where sales increased by 89% in Norway, 68% in Italy, and 43% in Germany during the season. E-commerce giant Alibaba is investing further in Europe, competing with Amazon on the same ground. According to Euromonitor International, Alibaba was among the top three online sellers of consumer goods in eastern Europe in 2020. In western Europe, Amazon is the top seller, yet its market share remained at 19.3% in 2020, showing no growth during the pandemic. On the other hand, Alibaba’s market share increased to 2.9%, marking a 2% increase from 2019. Riding on the growth, different business units of Alibaba have announced their expansion into Europe during the weeks leading up to the Singles’ Day shopping festival.

            Graph showing November 11 sales spikes in Europe

            Singles’ Day marks the growing importance of Chinese e-commerce in the retail landscape nationally and globally. Beyond its enormous market size and super-fast growth, China’s e-commerce is powering retailing innovations, digital marketing, and cross-border e-commerce. The once unofficial holiday is now full of domestic and international sales opportunities for interested retailers.


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              China’s New Regulations for Food Imports and Overseas Facility Registration

              The GACC (General Administration of Customs of the People’s Republic of China) has recently introduced two new decrees that, once implemented, would impose significant new requirements for foreign food companies that export to China. Both decrees will come into effect on 1 January 2022, replacing many previous regulations.

               

              Woman shopping in a Chinese supermarket

               

              On 12 April 2021, the General Administration of Customs of PRC (GACC) promulgated respectively the Registration and Administration of Overseas Producers of Imported Food (Decree 248) and the Administrative Measures on Import and Export Food Safety (Decree 249).

              In general, both regulations concern food importation in China. Specifically, Decree 248 is intended to standardize the process of registration at China’s local authority (GACC) for overseas food manufacturers, processors, and storage facilities intending to export their products to China while Decree 249 covers a range of requirements on food imports including overseas facilities registration, record filing by importers and exporters, inspection, and product labeling.

              The main adjustment provided for foreign food exporters in Decree 248 is the expansion of the scope of imported products subject to registration at the GACC. Under the current legislation, only overseas manufacturers of meat products, aquatic products, dairy products, and edible bird’s nests, are required to apply for registration. The new legislation, on the other hand, requires all food manufacturers, processors, and storage facilities, regardless of food category, to register with GACC.

              Decree 248 also stipulated two methods of registration procedures with GACC for different type of food producers and the high-risk foods. The list of high-risk foods includes 18 categories such as meat and meat products, aquatic products, fresh and dehydrated vegetables and dried beans, fried fruits, and more. Facilities that manufacture high-risk products are required to register with the GACC via their foreign competent authorities, while other food producers can register directly to GACC, either on their behalf or via a private agent.

              Chart showing Chinese food registration procedure steps

              Besides the noticeable changes in the extension of the scope of imported products and the registration methods, some other key adjustments from the two new policies include:

              • The introduction of the concept of “conformity assessments”, which covers the evaluation of foreign food safety management systems, the registration of overseas food export facilities, and required record filing by importers and exporters.
              • Registered overseas facilities are required to include the Chinese registration number or the registration number approved by the exporting country competent authority on both the inner and outer packaging of the products.
              • The sales packages of imported health food and foods for certain dietary purposes must be equipped with printed Chinese labels instead of only affixed ones
              • Imported fresh and frozen meat and aquatic food products require instructions on both the inner and outer packaging of the products, in Chinese and English or Chinese and the exporting country’s language, indicating all the necessary information.
              • The registration validity and renewal of registration will be extended from 4 years to 5 years, which is the same as the validity of licenses for domestic food producers.

              Overseas food exporters to China should pay special attention to the section in the new policies regarding packaging regulations. At present, only infant formula milk powder products are required to have a Chinese label printed on the packaging (not the label affixed in sticker format). However, under new regulations, this requirement will be extended to all special dietary products, including infant formula foods, infant complementary foods, foods for special medical purposes, nutrition supplementary foods, sports nutrition, and nutrition supplementary foods for pregnant women. In order to meet the requirements of the policy changes for product packaging, overseas food brands will need to adjust their packaging within the next few months before the regulation comes into effect.

              These new regulations are a signal that China is increasing the focus on food safety controls of food manufacturers. With major changes in the upcoming import regulations, food manufacturers who already export their products to China or intend to engage in this business should fully comprehend the new policies in order to operate in compliance with the law in force within Chinese territory.


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                by Asia Perspective Asia Perspective No Comments

                China’s Bar Industry Shows High Potential as Helens Becomes China’s First Pub IPO

                China’s largest pub chain operator, Helens International Holding, went public in September 2021, making its Chairman the newest billionaire of China. Despite the influence of the COVID-19 pandemic, the bar industry in China is forecasted to have extremely high growth, providing various market opportunities for new entrants.

                 

                Chinese couple drinking in a bar

                 

                China’s Newest Billionaire

                Helens International Holding, the operator of China’s largest bar chain, debuted on the Hong Kong Stock Exchange on September 10, 2021. On the momentous day, Helens’ shares surged by 22.9% from its IPO price, raving a market capitalization of US$3.9 billion and making its creator the newest billionaire of China’s growing bar industry.

                Helens International Holding engages in bar operations and franchise business in China, providing customers with a product portfolio of mainly self-branded products and offline social spaces. The Chairman and CEO, Xu Bingzhong, opened his first “Helen’s bar” in 2009. As of 2021, there have been respectively 66, 296, and 165 Helen’s bars in first-tier, second-tier, and third-tier cities in China, and Helens has been the market leader by number of bars in China since 2018, In 2020, the group was ranked first in China’s bar industry, with a market share of 1.1%. Its revenue that year was US$127.1 million. In the first quarter of 2021 (January-March), Helens’ revenue increased with a year-on-year growth of 494.5%, from 62 million to 368.6 million yuan.

                China’s Growing Bar Industry

                Bars are categorized under China’s catering market. Primarily serving alcohol and supplemental snacks, bars are also grouped within the nighttime industry. Several bars also have other facilities as part of their establishments, including karaoke, billiards, and arcade games.Table of China's nighttime establishment types

                 

                China’s bar industry heavily benefited from the rise in disposable income of Chinese residents. By 2019, its revenue reached US$18.9 billion, equivalent to a CAGR of 8.7% from 2015. After COVID-19 heavily limited social gatherings, China’s bar industry faced a drop in revenue in 2020. However, the industry is expected to fully recover by 2022 with a forecasted revenue of US$21 billion, much higher than its pre-pandemic level.Graph showing revenue of China's bar industry

                Revenue generated by the bar industry is also forecasted to reach US$29.4 billion by 2025, representing an impressive CAGR of 18.8%. Economic growth alongside disposable income allows the catering industry in general, and the nighttime industry specifically, to flourish. The rate of urbanization birthing new second and third-tier cities also creates opportunities for new bar ownership. Cities in third-tier cities and below had a CAGR of 13.8% from 2015-2019, which is much higher than that of the second (8.1%) and first-tier (6.3%) cities.

                By the end of 2019, China had approximately 42,000 bars, a CAGR of 5% comparing to 35,000 bars at the end of 2015. The number of bars dropped in 2020 due to small and independent bars being unable to generate cash flows during the pandemic. Nevertheless, the number of bars in China is expected to recover gradually in 2021 and 2022, as social restrictions are relaxed.

                Graph showing number of bars in China

                The country’s third-tier cities and below has a massive untapped consumer base, boasting a population of 1.1 billion, approximately 78% of China’s total population. The growth in the number of bars in those cities is forecasted to be at 17.4% in the next five years, surpassing the number of bars in second-tier cities.

                China’s bar industry is highly fragmented, consisting mainly of independent bars and bars with less than three establishments, and only a few bar chain networks. Over 95% of the total 35,000 bars in China in 2020 were independent bars. The top five bar operators in China have a total market share of approximately 2.2% in 2020 in terms of revenue (half of which is of Helens), leaving a large potential for further concentration in the market. Strong bar operators with highly standardized services, mature supply chains, and sufficient capital support would enjoy a strong competitive advantage. A clear example is Helens, who despite halting business, still managed to generate a net profit of $11 million during 2020.

                A Young and Growing Population Ensures Strong Growth in Upcoming Years

                The development of the nighttime industry has enabled strong growth in the bar industry. Apart from the mentioned drivers of high economic growth and governmental support, China also has a large population of young consumers. By 2020, the number of young people aged 20-34 in China reached nearly 300 million, equivalent to 21.2% of the total population. Young Chinese people are considered socially active, brand-sensitive, and more inclined to affordable goods and high-quality services. Thus, this group increases the demand for entertainment and social gatherings.

                The rate of urbanization in third-tier cities and below also create a large consumer group to tap into. The large consumer base, coupled with increasing income, is expected to drive the growth in bar spending by the residents of these cities.

                Market Trends and Opportunities

                In recent years, China’s catering industry has seen an increasing presence of private-label alcohol drinks, which are usually self-developed under the same name brand as their establishments. The self-owned brands help build the bars’ unique culture and brand images.

                Furthermore, evolving technologies in the industry are transforming the traditional consumption experience in the bar industry. Automated service and the development of new products are changing the way bars operate. This provides new opportunities as investments in technologies would allow bar operators to enhance consumers’ experience, while also streamlining operations to reduce costs and achieve economies of scale.

                In conclusion, Helens International Holding’s successful IPO shows the great potential of China’s bar industry, even amid a raging pandemic. The industry is set for robust growth in the future, backed by an increase in consumer spending power and demands in third-tier cities and below. There are also emerging trends in the market with the development of chained bar brands, a greater focus on brand recognition, and the introduction of private-label alcoholic drinks.


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                  Marcus Sohlberg, Business Development Director

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                  by Asia Perspective Asia Perspective No Comments

                  China Implements Three-Child Policy to Cope with the Rapidly Aging Population

                  In a major shift from the existing two-child policy that has failed to raise the country’s declining birth rates and avert a demographic crisis, China announced on May 31st that they now allow all married couples to have three children.

                   

                  Chinese parents playing with a baby

                   

                  In 1979, China introduced its controversial one-child policy to prevent Chinese couples from having multiple children to limit its increasing population growth and boost the economic development. In 2013, realizing the severity of the aging population, the government allowed parents who came from one-child families to have two children. Three years later, in 2016, China ended its decade-old policy and replaced it with a two-child initiative in the attempt to mitigate the risks of the rapidly aging population. Despite a short-lived jump in birth rates, the initiative has yet to show any significant, long-lasting results given the high cost of raising children in the country.

                  Recently, data from China’s seventh decennial census, released on May 11th, indicated that only 12 million children were born in 2020, a decline of nearly 20% from 2019. Besides, the fertility rate of China stood at 1.3 children per woman in 2020, which is far below the expected level of 2.1 to reach a stable population. The survey also showed that the proportion people of the age 60  and over rose from 8.9% in 2010 to 13.5% in 2020, and the average age of Chinese is predicted to reach 46 by 2050, indicating China’s rapidly aging population.

                   

                  Graph showing China birth rate 1978-2020

                  In a major policy revision intended to address the problems of its aging population and shrinking labour force, China recently further relaxed its limits on reproduction and announced that it would allow all married couples to have up to three children. The implementation of this new three-child policy is a part of the renewed attempts of China’s government to improve the imbalance population structure, actively cope with the substantial aging population and preserve the country’s human resource advantages.

                  The new policy change will also come with a variety of supportive measures. China will reduce the educational costs, expand maternity leave and workplace protection for pregnant women and step-up tax and housing support.

                  Although there is no certainty about the effectiveness of the new policy, China’s stock market has already responded to the news with an optimistic feeling. According to Reuters reports, stocks related to baby products and services, such as toy makers and diaper manufacturers, surged as soon as the news came out.


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                    by Asia Perspective Asia Perspective No Comments

                    Great Potential Behind Chinese 618 Shopping Festival

                    In addition to China’s biggest shopping festival, Double Eleven, the upcoming 618 Shopping Festival on June 18th is a great showcase of the world-leading development of the e-commerce industry in China, with trillions of dollars of merchandise sold in a very short time and delivered with extremely short delivery times to the homes of consumers.

                     

                    China 618 shopping festival

                     

                    In recent years, with the growing popularity of online shopping and the emergence of many e-commerce platforms, E-Commerce is becoming a dominant form of retail in many categories. As the second largest shopping event in the country, 618 Shopping Festival, which has been held annually in since it was initiated by the E-commerce giant Jingdong (JD.com) in June 2010, has been generating huge sales through providing attractive promotions. According to Chinese online payment clearing house – Nets Union Clearing Corporation (NUCC), the total GMV (Gross Merchandise Value) during China’s 618 Shopping Festival in 2020 reached 16.91 trillion yuan (2.52 trillion USD), an increase of 42% comparing to that of 2019.

                    In the latest 618 Shopping Festival, Tmall and JD.com, two major e-commerce platforms in China, both broke their transaction records. JD.com experienced a huge GMV growth of over 33% (YoY).

                    Graph showing 618 festival growth

                    To prepare for the frenzied shopping during the 618 Shopping Festival, many e-commerce platforms need to restructure their logistics network to fulfill the surging customers’ demand. Third-party logistics enterprises such as YTO Express and BEST Supply Chain have also been investing in automatic sorting equipment. After placing an order on the e-commerce platform, the operation center will get the order information immediately. Through the automated line, the average outbound processing time of each package is only 3 minutes, and the accuracy rate of picking goods can reach nearly 100%.

                    For some categories, such as electronics and cosmetics, JD has shown the capabilities to optimize for extremely short delivery times, under an hour, by AI-enabled demand prediction and omni-channel models. Another enabler for JD is a working with an open supply chain platform that can enable efficient resource usage, fewer touchpoints and more direct routes from manufacturer to consumer.

                    In conclusion, China’s e-commerce industry will continue to grow in the coming years and will be a driver for investments in logistics, and open opportunities for more western brands to quickly reach large markets in China.


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                      Marcus Sohlberg, Business Development Director

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