China consumer spending robust but not everyone stands to gain

China is the second fastest growing market for consumer products, posting a 9 percent annual compound growth rate since 2011, according to a Credit Lyonnais report. (Vietnam tops with a 9.1 percent growth clip.)

Retail sales expanded 10.4 percent to 23.23 trillion yuan (US$3.55 trillion) in the first eight months of this year, according to data from the National Statistics Bureau.

In August alone, retail sales rose 2.4 percent to 3.03 trillion yuan from the previous month.

With a huge market of 1.4 billion people – 100 million are middle class global firms such as Apple have added Chinese features to their new products to court mainland consumers.

Chinese consumers have always preferred imported goods to domestic products. But domestic firms are catching up with products of better quality.

Many Chinese brands of mobile phones and home appliances, known for their value for money, have made significant inroads into the domestic market.

Still, in areas like cosmetics, there is no leading Chinese player and foreign brands remain very much sought after.

The recent uptick of the Chinese currency is expected to further fuel the country’s demand for imported goods, benefiting consumer sectors like cosmetics.

In fact, cosmetics imports grew 14.7 percent in August.

That is good news for Hong Kong cosmetics retailer Sa Sa International (00178.HK). But a growing number of mainland consumers have found direct access to Japanese or South Korean cosmetics products online, so they may no longer need to visit Hong Kong to shop here.

China’s online shopping boom could pose a real threat to Sa Sa in the long run.

Sales of communication equipment also posted a strong growth of 12.2 percent last month. Homegrown companies like Huawei, Vivo, OPPO and Xiaomi have cornered 82 percent of China’s smartphone market.

Most foreign handset brands are feeling the heat of competition from these local brands.

Companies playing a key part in the mobile phone supply chain, such as AAC Technologies Holdings (02018.HK), Sunny Optical Technology Group (02382.HK) and China-listed Hangzhou Hikvision Digital Technology (002415.CN) have registered huge gains so far this year.

Their outlook remains positive as consumer spending keeps growing.

This article appeared in the Hong Kong Economic Journal on Sept. 14

Translation by Julie Zhu

[Chinese version 中文版]

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