Market Insights

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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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    Vietnam’s Rising Cold Storage Warehouse Market Reveals Opportunities for Investors

    Vietnam’s cold storage market is expected to grow fast with booming demand, yet the growth is obstructed by a critical shortage of suppliers. The country is in urgent need of more cold storage centres with comprehensive services and centralized cold supply chains.


    Workers at a cold storage unit in Vietnam


    Cold Storage Warehouses

    Cold storage warehouse, which is part of a cold chain, is a type of facility constructed with precise climatic conditions and additional maintenance to keep items safe at suitable low temperatures. Goods that are easily spoiled at normal room temperature and require cold storage are food, beverages, pharmaceuticals, chemicals, plants, and flowers. The tenants of cold storage warehouses are often third-party logistics companies, cold storage logistics specialists, or supermarket chains.

    Vietnam’s Cold Storage Market

    The cold storage industry is relatively new in Vietnam. Vietnam’s cold logistics is forecasted to reach a value of 295 million USD by 2025, with an exceptional growth rate of 12% per year. Despite a high projected growth rate, the market is nowhere near reaching its full potential. As of May 2021, Vietnam only had 48 cold storage warehouses with a capacity of about 700,000 pallets. Only 8.2% of domestic food manufacturers used cold chain systems, while export manufacturers accounted for 66.7% (2020).

    Cold storage suppliers in Vietnam are mainly located in the Southern region. The market is more developed in the south because of high demand from seafood exports and retailers. Meanwhile, the Northern market witnessed an increase in warehouse capacity from 26,750 pallets (2015) to 71,750 pallets (2018).

    About 60% of the market share is held by foreign investors, 14% by logistics companies and the remainder is held by members of the Vietnam Logistics Business Association, such as Transimex, Gemadept, and Saigon Newport.

    Critical Shortage of Cold Storage

    With 2020’s export turnover of agricultural products landing at 41.2 billion USD, Vietnam become the third-largest seafood exporter globally, which is the industry that occupies the largest share of cold storage. However, the current capacity of Vietnam’s cold storage warehouses only meets 30-35% of the nation’s demand for preserving seafood, agricultural products, and fresh food. By the end of 2019, the filling capacity of domestic cold storage had already reached 80%.

    The cold storage supply shortage situation has been worsened by the Covid-19 pandemic. During the peak of the pandemic, 30-50% of seafood export orders were cancelled and raw seafood that needed to be stored at low temperatures could not leave the country. Consequently, the congested goods filled up a large share of the cold warehouses, and the remainder of the country’s cold storage capacity could not meet the demand. Additionally, during the long period of lockdowns, locals were restricted from visiting supermarkets, and instead turned to e-commerce or online shopping for fresh food. To keep the delivered groceries fresh for the consumers, more and more sellers turned to distributors with refrigeration to handle their products. This shift in consumer behaviour added more pressure to the limited cold storage operators. As the available warehouses are already operating at full capacity, the market is witnessing a surge in rent prices; cold storage rents in southern Vietnam stood at 87 USD per ton in Q4/2021, up 167% from Q1/2020.

    Problems With Cold Storage in Vietnam

    Aside from the effects of the pandemic, one of the main causes of the supply shortage is the costly initial investment required to build and maintain a cold storage warehouse. The construction of one requires special equipment, continuous inspections, and far more electricity than other logistics facilities. Some cold storage warehouses are twice to three times more expensive to build than a conventional warehouse. In addition, the construction time is often longer – from 6 months, up to one year, and the lease term usually lasts from 15 years to 20 years, making supply even more scarce. Therefore, despite long-term benefits, businesses without strong financial support hesitate to build and operate cold storage. In Vietnam, some large corporations invest in their storage systems, yet small and medium-sized companies are dependent on the overcrowded rental market.

    The scarcity of cold storage has posed multiple risks for Vietnam’s agricultural product export. Seafood export businesses need cold storage not only to store products purchased from farmers that will later be distributed to retailers, but also to keep a safety stock of products to serve unexpected surges in demand. The extreme cost of logistics caused by the abnormal surge in cold storage rents has made these businesses struggle to operate. Many businesses cannot afford the high cost, thus, they are hesitant with their purchases as they are unsure whether they can meet the demand or not.

    Investment Opportunities

    The strong projected growth in demand reveals a lot of opportunities for new cold storage suppliers. Vietnam’s large population, high urbanization rate, a booming trend in online shopping, and rapid growth of the middle class, have led to increased orders on high-quality fresh food, which will only further drive the need for cold storages.

    Improved exports infrastructure following the construction of Long Thanh International Airport and trade agreements, it is predicted that the global demand for Vietnamese seafood will be on the rise in upcoming years. The new free trade agreement between Vietnam and the EU (EVFTA) also helps to amplify the growth as the EU is the largest importer of Vietnamese seafood (23%).

    Growing demand for cold storages show a promising future for potential suppliers, but there is still room for improvements in the existing network of cold storages. There is a lack of measures that fully ensure safe and efficient service, the supply chains are decentralized, and the market mostly consists of small and medium-sized warehouses. Therefore, the country is not only in urgent need of more big cold warehouse suppliers, but also of more cold storage centres with comprehensive services and a centralized network.

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      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, 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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        Vietnam’s Automobile Market: Upward Projected Growth Trajectory

        VinFast (VinFast LLC) is known as Vietnam’s first automobile brand, the company was founded with the backing of Vingroup, one of the most influential conglomerates in the nation.


        New cars parked outside a factory


        VinFast’s Importance to Vietnam’s Automobile Industry

        With the ambition to build a high-class Vietnamese brand and gain international recognition, VinFast has made continuous efforts in the design and technology of automobile production in recent years. From January to October 2021, the company recorded a remarkable growth of 97.7%.

        In 2021, VinFast earned much attention with the launch of two electric car models in the US and the establishment of the first electric vehicle battery factory in Vietnam. VinFast first introduced two electric vehicle models VF e35 and VF e36 in November at the Los Angeles Auto Show (LAAS) 2021. By the end of 2021, the company confirmed that they would participate in the Consumer Electronics Exhibition (CES) 2022 where they would introduce 3 more new electric car models. VF e35 and VF e36 respectively belong to class D (large car) and class E (top class car), the 3 new models at CES 2022 are revealed to cover class A (mini car), B (small car), and C (medium-sized car).

        Vietnam’s Electrical Vehicle Charging Infrastructure

        To serve the electric vehicle ecosystem in Vietnam, VinFast is planning to install 2,000 electric vehicle charging stations in 63 provinces and cities, which corresponds to more than 40,000 charging stations of all kinds. On an area of ​​​​about 8 hectares in central Vietnam, the group has begun the construction of a 174 million USD battery factory for the VinFast electric vehicle business. The factory is expected to produce up to 1 million battery packs per year, significantly increasing the scale of the domestic electric vehicle battery manufacturing industry.

        Being on the upswing, VinFast also plans to expand its business and promote the Vietnamese automobile globally. After announcing plans to enter the European and North American markets in 2022, VinFast opened offices in both regions; California is one of the first places in the US to have a VinFast showroom. The company directly distributes its products in Germany, France, and the Netherlands. The next step in the expansion plan will include Italy, Scandinavia, Switzerland, and Austria.

        Vietnam’s automobile market potentials

        Along with the success of VinFast, the Vietnamese auto industry is also experiencing positive developments. Although the nation’s rate of car ownership per capita is still much lower than other markets in Asia (only around 5.7% of Vietnamese households owned a car in 2020), Vietnam is still one of the countries with the fastest-growing purchasing power for personal cars over the past ten years. 9% of the Vietnamese households are expected to own a car by 2025 – equivalent to the current level of India and the Philippines. By 2030, car ownership will reach 30%.

        This growth trend is expected to be continued by multiple drivers. Apart from the populations’ increasing income, some key factors driving this growth are the change in government policy towards the auto industry and Vietnam’s active participation in many free trade agreements. Particularly, from the beginning of December 2021, the Ministry of Finance has officially announced a 50% reduction in registration fees for domestically assembled cars. The cut fee has helped to lessen the dependence on imported cars and promote domestic automobile production. This fee will also be 100% exempt for battery-powered electric cars, so businesses are more encouraged to invest in the production of electric vehicles. Regarding international trade, in two important free trade agreements (FTAs) the country has joined – CPTPP and EVFTA, Vietnam commits to reduce and eliminate import car tax in the next 7 to 13 years. The upcoming RCEP will enhance the effects even more. Tax reductions on imported cars, coupled with the ability to produce domestic vehicles, will undoubtedly boost the local automobile industry.

        Vietnam’s exports of automobile components

        Regarding exports, despite being a country that imports 75% of car assembly components, Vietnam also exports a huge number of auto parts every year to major markets such as the US, Japan, South Korea, China, Thailand, and Germany. Specifically, in the first six months of 2021, Vietnam exported more than 1.3 billion USD worth of auto parts to Japan, nearly 1.1 billion USD to the US, more than 230 million USD to China, and more than 330 million USD to South Korea. The export value is usually 1.5 – 2 times higher than the value of auto parts that Vietnamese enterprises import. The export outlook in the automobile market of Vietnam will increase even more in the future under the effects of FTAs and the rise of the electric battery production industry.

        Like many other industries, Vietnam’s auto industry was also influenced by Covid-19. In the third quarter of 2021, when the country experienced the worst wave of new cases since the start of the pandemic, most auto businesses recorded a net loss. However, in the fourth quarter, the situation improved massively when the Vietnam government accelerated the pace of vaccinations, loosened pandemic prevention measures, and started implementing reopening strategies. The domestic vehicle market in October 2021 has been recovering, net sales reached 43.6% above pre-pandemic levels. 39,348 units have been sold in October (-7%), leading to total sales from January to October 2021 at 279,043 units (+2.6%).

        With the development of electric vehicles, the battery industry for electric vehicles, the increasing demand for automobiles, and the supporting policies from the government, the Vietnamese automobile market owns many advantages to develop even more and shows ample investment opportunities.

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          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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            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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              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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                Indonesia is On Course to Become a Major Solar Power Exporter

                In 2021, the government rolled out two important regulations showing strong support for investments in renewable energy. Its neighbouring country, Singapore, signed two agreements on the same day to import solar energy from Indonesia. A recent finding by the Australian National University reveals that Indonesia’s solar power system could reach 190,000 TWh in 2050, far more than the nation’s total demand.


                Solar farm in Bali, indonesia

                Long-awaited Boost by the Government in the Renewable Energy Sector

                So far in 2021, the Indonesian government has issued two important regulations, the energy ministry’s Regulation No. 26/2021, addressing the use of rooftop solar power systems, and the Electricity Procurement Plan (RUPTL) for 2021-2030. The two regulations are expected to support the goal to have renewable energy make up 23% of the country’s total energy mix by 2025.

                Energy ministry Regulation No. 26 amended the previous 2018 solar rooftop regulation with one notable point. Independent power producers (IPPs) that signed power purchase agreements (PPAs) with the state-owned power company PLN will now be able to export 100% (instead of 60%) of the electricity generated by rooftop solar panels. While the regulation is still under debate, it would undeniably improve the investment appeal in solar rooftop systems.

                Moreover, the RUPTL 2021-2030, released by PLN, sets the target that renewable energy should account for 51.6% of the national energy mix by 2030, a significant increase from the 30% target set out in the RUPTL released in 2019. PLN plans to build 40.6 GW-worth of new power plants through 2030, 20.9 GW of which would be from renewable resources. Hydropower would account for around half of the new renewable energy resources, solar for 4.7 GW, and geothermal for 3.35 GW.

                Graph showing share of new power plants to be built by 2030

                PLN’s plan aligns with the government’s zero-carbon pledge by 2060. The coal-dominated power sector is one of the largest contributors to Indonesia’s carbon emissions. Indonesia’s long dependence on coal power plants has lately been more precarious as China, a major investor in Indonesian coal power plants, pledged to halt investment in coal power abroad. Slowed drafting of supportive regulations, coupled with the nature of the business requiring high initial costs and low return on investment, made investments in renewable energy unattractive. On average, the Indonesian installed capacity of renewable energy has only grown by 4% since 2012, compared to more than 10% in Malaysia, Singapore, Vietnam and Thailand.

                Graph showing Indonesia's renewable energy installed capacity

                Several further steps need to be taken to achieve the government’s ambitious goals, including finalizing the laws for renewable energy and the presidential regulations for pricing and procurement for renewable energy. Additionally, an optimum energy transition roadmap is required to strike a balance between environmental conservation and sufficient energy supply.

                Major Cross-Border Solar Power Projects

                Multiple promising solar power projects were recently announced by the government, including exporting deals with Singapore and Southeast Asia’s largest floating solar power project with the United Arab Emirates. The projects, as interpreted by experts, are signals of an export-intensive strategy in which local and international companies seek to export green energy from Indonesia to its neighbours.

                Two Joint Development Agreements (JDAs) were signed on October 25, 2021, by Singaporean companies for the import of solar energy from Indonesia. One was signed by Singapore’s Sembcorp Industries, which announced that the joint development plan would include the development of a large-scale integrated solar and energy storage in Indonesia’s Batam, Bintan, and Karimun (BBK) region. Another JDA, signed by PacificLight Power (PLP) – a Singaporean-based power retail company, and a consortium of Indonesian power companies, was for a 100MW pilot solar export project from Indonesia to Singapore. The JDAs were signed after Singaporean Minister for Trade and Industry announced Singapore’s plan to import around 30% of its electricity from low-carbon sources by 2035.

                After a financing agreement between PLN and Masdar of the United Arab Emirates, Indonesia began working on a 145 MW floating solar power project, the largest in Southeast Asia, on August 3, 2021,. The project is scheduled to begin commercial operation in November 2022. A similar plan will also be developed in eight other reservoirs in Java and Sumatra.

                Vast Potential in Indonesia’s Solar Energy Sector

                A recent study published by the 100% Renewable Energy team at the Australian National University (ANU) outlined that Indonesia’s potential in solar energy is far larger than the potential in any other energy sources, and much higher than needed nationally.

                Graph showing Indonesia's solar energy potential

                The research team forecasts that Indonesia could harvest 10 billion solar panels by 2050. The panels could be distributed across the archipelago, from rooftops, abandoned coal mine sites and agriculture sites, to floating on the country’s inland sea, lakes, and reservoirs.

                Chart showing Indonesia's solar energy potential by region

                The Indonesian Ministry of Energy and Mineral Resources reported a total of 154 MW of installed solar panels as of 2020. That is far below Vietnam (16,500 MW) and even less than Singapore (377 MW). However, the new improvements in regulations and the influx of solar projects could significantly change the Indonesian current standing.

                Indonesia has tremendous opportunities to become a major exporter of solar power. The latest regulations signify the government’s focus on the sector, which helps boost interest in solar investments. The newly signed projects with Singapore also prove Indonesia’s prospect in selling its vast solar power potential to neighbouring countries.

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                  Marcus Sohlberg, Business Development Director

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                  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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                    by Asia Perspective Asia Perspective No Comments

                    India’s Textile Industry is Resilient, Backed by the Government for Further Growth

                    Textile exports in India for the first half of 2021 have surpassed pre-pandemic levels, a welcomed development after the dire effects that the COVID pandemic has inflicted on the economy. The Indian government recently introduced a scheme that is expected to help the industry further expand its growth within the next five years.


                    Indian textile workers

                    Resilience Amidst the Pandemic

                    From January to July 2021, India exported US$23.8 billion worth of textile products, 52.6% higher than the same period in 2020, and 13.7% higher than the pre-pandemic level of 2019. This positive result came amid a heavy summer as COVID cases surged in the country.

                    Graph showing Indian textile exports

                    A leading factor in this exceptional growth is the China Plus One strategy, the business strategy to avoid investing in only China and diversifying into additional countries, which has been adopted by many European and US apparel brands. The US ban on Chinese cotton is also a contributing factor. Improved global demands, especially from the US and European markets, has helped the Indian textile industry stay afloat.

                    In terms of export destinations, a major share of the exported textile products during January-July 2021 went to the US, followed by Bangladesh and United Arab Emirates (UAE). Interestingly, a total of US$6.05 billion of textile products were exported to the US, three times as much as the US$2.07 billion export value to Bangladesh.

                    Table showing destinations for Indian textile exports

                    The textile industry contributed to 7% of the industrial output, 2% to the nation’s GDP, 12% of the export earnings, and accounted for 5% of the global market. India is one of the largest textile producers in the world, placed as the sixth largest textile exporter in the world.

                    Government Approves New Scheme to aid the Textile Industry

                    In September 2021, the Indian Union Cabinet approved a Production-Linked Incentive (PLI) scheme for the textile sector worth US$1.42 billion. The purpose of the scheme is to attract new private investments of US$2.56 billion for in-demand textile production, with an expected total turnover of US$40.42 billion over five years. The in-demand textile segments are Man-Made Fiber (MMF) fabrics, garments, and technical textiles.

                    The focus of the PLI scheme would help boost the value of the textile sector and shift production to align with global demands. Among the APAC countries, India is currently strong in exporting upstream segments of raw materials and yarn spinning, while much weaker in fabrics and finished goods. This evidently limits the value of India’s export. China, in comparison, has a higher share than India in all segments, including downstream products that generate higher value.

                    Graph showing India and China shares of textile market in APAC region

                    Moreover, the majority of India’s apparel export is cotton products, while the trend in global consumption is towards manmade textiles.

                    Table showing India and China share of exports by fibre type

                    The PLI scheme will give incentives in two categories. With the first category, any person or company that invest a minimum of US$40.42 million in plants, machinery, equipment, and civil works (except for land and administrative building cost) to produce either MMF fabrics, garments, or technical textiles, will be eligible to participate. The second category requires investors to spend a minimum of US$13.47 million under the same conditions.

                    Companies participating in the scheme are expected to meet the minimum turnover requirements within 2 years. If they pass, they will be entitled to 3-11% of the incremental revenues year-on-year for five years. Any subsequent reception of the incentives will be heavily dependent on the companies’ performance in those years.

                    Table showing summary of India's PLI scheme for the textile industry

                    The rebound of the textile and garments industry in India is more than impressive as the country braves through the COVID pandemic. The government’s fresh policy arrived at the right time as the sector competes to regain its position globally. Fueled by the unprecedented growth and the government’s strong support, India’s textile industry is expected to magnify both in scales and specialities.

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                      Marcus Sohlberg, Business Development Director

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                      During the consultation we will discuss your needs and how Asia Perspective can help. Please fill out the form and you will be contacted within 24 hours.

                      Marcus Sohlberg, Business Development Director

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