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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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    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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        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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          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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            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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              China’s Thriving Drone Industry

              Drone Industry Overview

              Lately, the media have been filled with articles and clips of drone shows that have painted Shanghai’s iconic skyline in different shapes and words. A recent event used over 3 000 drones to paint the skyline with their huge company logo, another used it to create a huge, mysterious, scannable QR code advertisement in the night skies of the city, shaping the future of high-tech advertising. These record-breaking publicity stunts are a milestone in the deployment of massed drones.

               

              Drone flying in the sky over Shanghai

              Future of Drones: Applications & Uses

              The drone industry in China, also known as Unmanned Aerial Vehicle (UAV) industry, has expanded rapidly in the recent years with the emergence of many companies making drones for commercial, industrial, and military use. The leading technology, coupled with the increasing domestic demand in different fields as well as supporting policies of government are driving the growth of China’s UAV industry strongly and making it an attractive market for businesses.

              Over the past few years, unmanned aircrafts have become central to the functions of many businesses and governmental organizations and have managed to pierce through areas where certain industries were either stagnant or lagging behind. Individuals, commercial entities, as well as governments have come to realize that drones have multiple useful features that can be applied in various fields and are putting more focus on this technology. Increasing work efficiency and productivity, improving accuracy, refining service and customer relations, and solving security issues are some of the common applications of drones globally.

              The Chinese Drone Market Outlook

              The Chinese market is currently the second largest drone market in the world and will continue closing the gap with the leading market, the United States, until 2024. In the upcoming years, the market is expected to grow strongly with a CAGR of 40.57% between 2017 and 2024. The volume of drones in China is also predicted to witness an impressive growth of 25.7% in 2022 and amount to 3.08 million pieces by 2025.

              Graph showing drone market growth

              As the home country of DJI, the world’s largest drone maker, drones are becoming increasingly popular in China. DJI has long been the global leader of drone manufacturing, and holds over 70% of the global drone market share. During 2013 – 2017, its sales revenue almost doubled every year and its industrial output exceeded $3.8 billion in 2019. The success of DJI is mainly driven by its low production cost, skilled labor as well as its responsiveness to the market needs.

              Graph showing China drone market share

              Opportunities and Challenges

              The aggressive growth of the UAV industry in China can be attributed to the policy and regulatory support as well as tremendous investments from the Chinese government. According to the UAV guideline published by the Chinese Ministry of Industry and Information Technology, the ministry has planned to establish and revise more than 200 rules covering the research, production, application, and safety regulation of civilian drones. Also, recently in May 2021, Chengdu Aircraft Industry Group (CAIG) – a subsidiary of the state-owned Aviation Industry Corporation of China signed a deal with the provincial government of Sichuan to jointly invest around 1.55 billion USD to establish an industrial park in the region, dedicated to UAV.

              With the great support from government and the accelerating development of technology, China is dominating the global consumer and commercial drone market, and the buzzing center of this industry is Shenzhen. The city is widely regarded as China’s Silicon Valley and is the home to over 600 licensed drone manufacturers, out of a total of around 7,000 in mainland China. The concentration of drone enterprises in Shenzhen is ideal for the industry’s global competitiveness and innovation.

              The increasing demand for a next-generation logistics network is also offering significant growth prospects to China’ drone market. With the population of over 1.4 billion and various cities in the world’s top 20 list for highest density, China has an urgent need for greater movement of people, goods, and services. JD.com – China’s second largest online platform, has been building a drone-delivery network that covers 100 rural villages leveraging 40 unmanned aircrafts since 2017. SF Express, one of the global leaders in drone delivery, recently became the first company with a Drone Operator License in China; providing a scale of delivery that is unparalleled to anywhere else.

              Besides the great opportunities, the drone industry in China is also facing numerous challenges that might affect its aggressive future growth. Drone applications are spreading rapidly, but how to prevent their potential public safety hazards has become a common issue of public safety management around the world. China wants to support its booming drone market, but still needs to regulate it to prevent accidents. Certain commercial drone uses in densely populated areas such as Beijing and Shanghai have been limited and this would pose a challenge to the potential implementation of the emerging drone delivery method.

              The drone market in China is also witnessing the emergence of hundreds of new entrants, which will possibly drive down the average selling price of drones significantly in the upcoming years. Investors or industry players seeking opportunities to enter China’s drone industry should be of aware the increasingly fierce competition in this booming market.

              Summary

              It is undeniable that drones are rapidly growing in popularity at a global scale with its diverse applications in different industries. As the home of the world’s largest drone manufacturer, China’s drone industry has witnessed an impressive growth in the past few years and is opening concrete opportunities for businesses. Driven by the strong governmental support as well as technological advancements and the surging domestic demand, the industry will continue to thrive in the upcoming years despite some of the regulatory and safety management challenges it might encounter.


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                SIAL China 2021 Brought Together Global Leaders in the Food and Beverage Industry

                SIAL China 2021, one of the world’s biggest food and beverage (F&B) professional showcases and conferences, was held at the Shanghai New International Expo Center (SNIEC) on May 18, 2021. Featuring an exhibition area of 180,000 square meters, the event brought together over 4,500 exhibitors to come and showcase more than 300,000 products.

                 

                SIAL China 2021

                 

                SIAL China is an integral part of the SIAL Network, a 56-year exhibition company oriented from Paris. Since 2000, the event has been held annually in Shanghai and has brought a great number of opportunities for both international and local F&B companies to gain a deeper understanding of China and Asia’s markets as well as increase their international visibility. At SIAL China, food producers, distributors, wholesalers, and retailers will be able to experience the most innovative and demanding products in the industry.

                This year, the exhibition was held across an area of 180,000 m2 and attracted more than 4,500 exhibitors from over 60 countries and regions to come and showcase more than 300,000 products. In conjunction with the exhibition, the three-day event also featured more than 16 forums and activities, collaborating with global leaders in the F&B industry and over 100,000 professionals to analyse the global food trends.

                SIAL China also collaborates with XTC World Innovation to hold SIAL Innovation Competition which is a unique international competition that rewards the best innovations in food and non-food related products, such as packaging and containers. Furthermore, unlike the previous 21 exhibitions, SIAL China 2021 has empowered the 700,000 food industry professionals from all over the world by giving them the opportunity to participate in and interact via live streaming platforms of ten concurrent forums. In the future, SIAL China expects to continue strengthening exhibition services through Internet, using live streaming platforms as well as other latest communication methods.

                In 2021, the event will take a strategic step forward with the SIAL China South exhibition, which will be held from 28 to 30 October in Shenzen. This marks the evolution of SIAL’s deep dedication to the Chinese market and is also a further expansion of the SIAL Network.

                With the existing SIAL Network and a strong edge of its dedication to China for 22 years, SIAL China has brought together around 40,000 global exhibitors and over one million global professionals and remains positive despite the harsh economic situation, making it a trading platform where food and beverage from all over the world converge.


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                  Cross Border E-commerce is Opening China’s F&B Market for Foreign Exporters

                  The Chinese government is supporting the growth of CBEC (cross border e-commerce) businesses to promote foreign trade in the country with a range of new initiatives. CBEC is therefore gaining momentum in China and is opening more opportunities for foreign F&B (food and beverage) exporters and enterprises to enter China’s giant consumer market.

                   

                  Woman shopping online with credit card and phone

                   

                  CBEC – the activities of trading products through online platforms across national borders is gaining momentum in China and is opening the Chinese F&B market wider to international exporters. Through CBEC platforms, international brands can sell their products to Chinese consumers at preferential duty rates without a license to operate a business in the country.

                  In the recent years, CBEC is becoming an important channel for import and export activities in China. From 2016 to 2020, the percentage of CBEC from China increased from 2.2% to 11.25%. According to a study of iiMedia Research Group, in the first quarter of 2020, Chinese CBEC users were more likely to buy F&B, toiletries, and healthcare items via CBEC platforms, partly due to the Chinese New Year and the COVID-19 outbreak. In China, there are many online platforms that operate cross-border e-commerce, some of the key players in China are Alibaba’s Tmall with 28% market share, Kaola with 20.5%, JD.com and Vipshop Global with 13.5% and 9.8%, respectively.

                   

                  Chart showing market share of cross border e-commerce companies in China

                  In 2020, in an attempt to accelerate the growth of CBEC, Chinese government rolled out several policies, including adding more CBEC pilot areas and pilot cities, expanding CBEC retail import list as well as cutting down tax and tariffs. In May 2020, China’s State Council approved the establishment of 46 comprehensive CBEC pilot zones, bringing the total to 105 areas in China. In January 2020, Chinese authorities released the notice to expand the pilot cities for CBEC by adding 50 cities and the island of Hainan into the new pilot scheme of CBEC .

                  Further, in December 2019, the “List of Goods under CBEC Retail Import” were also expanded to allow more international F&B products to be sold through CBEC platforms. The products in the list will not be subject to the license approval, registration, or filing requirements for first time importation. A total of 92 items were added to the list, including frozen seafood like frozen oysters, scallops, octopus, and alcohol drinks such as gin and vodka.

                  In conclusion, it is undeniable that these new initiatives of Chinese government have made it easier for foreign F&B companies to bring their products to China’s market. Selling products through CBEC platforms not only save money but also save time for foreign brands since companies do not need to have warehouse or legal license and legal entity in China. International F&B entrepreneurs can also use CBEC platforms to develop a mechanism to collect customer and sales data from the platforms to build up market expansion strategies as well as discovering the opportunity to develop offline channels in the country.


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                    by Asia Perspective Asia Perspective No Comments

                    China’s International Consumer Product Expo Attracted Worldwide Attention

                    In May 2021, China’s first International Consumer Expo was held with the aim to accelerate the entry of foreign brands and increase sales under the recently enacted tax-free policies for consumers that is one of many policies in the Hainan Free Trade Port. The Chinese central government has in 2020 released a roadmap for making Hainan a hub of increased opening to the world with policies covering many sectors. Apart from Consumer duty free & tourism, the strategy also includes policies for internationalizing the service sector, healthcare, information technology, transport sector and manufacturing that foreign companies should evaluate in their strategic planning for Asia.

                     

                    China International Consumer Expo 2021

                     

                    In the second quarter of 2021, China’s held its first International Consumer Product Expo (CICPE) in Haikou, the capital of Hainan. The exhibition was jointly organized by China’s Ministry of Commerce’s Trade Development Bureau and the Hainan Provincial Bureau of International Economic Development, with the aim to accelerate Hainan’s Free Trade Port’s development and underline China’s commitment to open-up and share business opportunities with the rest of the world. Going forward, the event will be held annually, with a focus on consumer products.

                    The Expo, which took place from May 7 to May 10, attracted the attention of both international and domestic exhibitors from over 70 countries and regions to come and showcase their products. Over 1,400 companies participated to exhibit nearly 2,500 brands during its 4-day run. In addition, on the last day of the event, the exhibition was opened to consumers and attracted more than 50,000 visitors, bringing the total audience to around 100,000 people.

                    In the tropical Hainan province, Chinese consumers on vacation or business visits can buy duty-free foreign products, to bring with them when they return to other provinces of China. Hainan recently raised the annual duty-free shopping quota from 30,000 yuan (4,335 USD) to 100,000 yuan (14,450 USD) per each person. Also the number of duty-free product categories has also been expanded from 38 to 45, with products such as cellphones and laptops added to the list.

                    Graph showing Hainan duty free sales 2021

                    According to the statistics from China’s Haikou Customs, in the first quarter of 2021, around 17.8 million items were purchased by 1.8 million people in Hainan’s duty-free shops during the three-month period, an increase of 328% and 177% (YoY), respectively. With the strong recovery of consumer activities after the economic downturn 2020Q1 due to Covid, and the major enhancement of duty-free shopping, the total sales at Hainan’s zero-duty zone surged in the first quarter of 2021 and reached 13.6 billion yuan (2.1 billion USD), up 356% (YoY). According to a report by KPMG, it is predicted that Hainan’s free trade port agreement will soon become the world’s largest duty-free market if it continues to grow at the current trajectory.

                    The gathering of the world’s best quality products in the Consumer Product Expo in Hainan has brought in not only new opportunities for international companies to develop their businesses in China’s giant market, but also for the local players to bring their products to the world. Many foreign brands have launched their new products in this exhibition. For instance, Shiseido – a well-known cosmetic company in Japan has introduced its new skincare brands Ginza and Baum. Other big companies such as L’Oréal, Swatch Group also introduced their new products during the event


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