I just came back from a China tour last week, where it was a privately organized tour.
We had institutional investors, private investors and family offices flown in across the world to visit.
Lots of takeaways and I’ll definitely be sharing my portfolio strategies with Diligence members.
But today, I like to talk more on what’s more important at hand – China’s domestic consumption.
Last week, I met with companies across industries – hotel, fashion, consumer brand, livestreaming, F&B and even gaming.
It was a front row seat into how the world’s second largest economy is quietly reinvesting itself.
I’d say the key message is Chinese consumers are still spending – just differently.
1. China’s most powerful consumption engine – livestreaming
We visited Foshan Yowant Technology’s (002291.SZ)’s X27 shopping mall. Yowant Technology is one of the fastest growing social e-commerce platforms, specializing in live-streaming commerce and digital marketing.
It works with over 25,000 brands and hosts celebrity influencers for their digital marketing campaigns.
I saw up close China’s most powerful consumption engine – livestreaming. We took a 2.5 hour bus ride to Hangzhou, where we visited Yowant’s shopping mall, and were completely dead.
No shoppers. No foot traffic. The hallways echoed in silence. Yet, this ghost mall was quietly generating at least tens of billions of yuan in sales in its first year.
Almost every retail shop was converted into a livestreaming studio. These were either rooms and corners of the shops where hosts sell products online for hours each day – from alcohol, to bags, clothing and so on.
These livestreamers can move products at lightning speed, often spending four to five hours each time in front of a live camera. These livestreamers are mostly local celebrities and can be very competitive.
According to Youwant’s management, they said livestreaming accounts for 90% of its sales, followed by short videos.
Meanwhile, US short videos account for 80% of their online spending, with the remaining 10-20% in livestreaming.
In China, buying things online is a social experience and the sale happens through storytelling. Think traditional direct marketing TV advertisements.
In other words, China is way ahead in terms of how consumers spend their money online.
2. Rise of China’s local brands
A decade ago, it’s an aspiration for Chinese consumers to want something foreign – whether it’s coffee, cosmetic products, bags, fashion and so on. But that story has changed.
Today, China’s consumption is shifting from global admiration to local confidence. The new generation of Chinese consumers are shifting their spending behaviour toward buying local brands.
They want brands that speak their language, reflect their lifestyle and culture. In other words, Chinese consumers are looking for brands that understand them.
Last week, we met companies like Proya Cosmetics (SHSE: 603605), which have emerged as the new faces of China’s beauty scene.
While Proya has modelled its products from L’Oreal Group, what differentiates Proya from other global skincare brands is knowing exactly what China consumers want.
This has resulted in the local skincare giant to grow its revenues from a mere CNY1.6 billion to over CNY10 billion last year. It has also grown its net income from CNY153 million to CNY1.5 billion over the same period.
Management has said competition has been intense as local brands are growing very fast in China. This also means a local company like Proya has to consistently launch new products in order to keep up with the intense competition.
On the other hand, we also met with JNBY (SEHK: 3306), one of China’s homegrown fashion companies. We wrote about JNBY here. Today, it commands around ten million members in its database with over 2,600 stores across China.
What attracted Chinese consumers to JNBY’s homegrown brand again is its focus on design around Chinese culture and values.
Instead of competing with global brands, JNBY focuses on creating its own niche that appeals to the local consumers.
What’s more, the rise of local brands is more than just a cultural moment. It’s an economic strategy.
With China’s focus on domestic consumption, self-reliance, this means more Chinese consumers are willing to support homegrown products.
Even in technology, companies like Huawei, Xiaomi and Alibaba have even become global players.
3. China’s business models are changing
China adapts very quickly. Local companies know what works, what doesn’t work. One thing that surprised me was how these local companies were making money.
Across every sector, China’s business models are shifting toward asset-light, experience-driven businesses.
For instance, on our first day of the tour we visited Atour, one of China’s leading hotel groups.
Instead of owning real estate, Atour runs on a franchise model, managing operations while allowing investors to own properties.
Of its ~2,000 hotels, most of its hotels are franchised. This means the company brings in financial investors to buy the real estate, and lease it to Atour.
Meanwhile, Atour puts in two of their management in each hotel to run the individual franchise.
Here’s what’s more interesting. These hotels serve as a first point of contact for Atour’s customers because Atour also sells hotel related products like pillows, bedsheets and so on that can be found in their hotel rooms.
They have turned their hotel operations into a retail franchise.
While management has indicated China faces a hotel oversupply, they believe Atour can continue to grow because it serves a niche business for domestic travellers.
4. Robotics – the future of AI
One of the biggest discoveries is how fast China’s AI robotics have grown. In fact, we visited Deep Robotics, one of Hangzhou’s famous “Six Little Dragons” tech startups – a grouping that also includes DeepSeek, Unitree, and Game Science.
We saw how many of these robots, including the Jueying X20, Lite3, X30, and Lynx models are already used for industrial applications including emergency rescue, fire detection and research.
In fact, our SP PowerGrid has bought some Deep Robotics robots to be used for tunnel inspection, detect leakages and using robots to replace work that could be dangerous for human beings.
What’s more, these robots have already been used for other industrial applications.
Some of these robots can cost anywhere between US$20,000 to US$50,000 depending on how it’s customized.
My final thoughts
Some of my biggest takeaways so far…
China’s domestic consumption has evolved. It’s unlike other developed economies but China has taken on online spending to a different level.
With that, local companies are now focusing on iterating and quickly putting out new products to test what works and what doesn’t work. They can do this because of the rise of the internet and e-commerce. This scale allows these companies to scale fast.
Live-streaming will be the next thing for Chinese consumers. With China having skipped a generation of emails, local consumers find themselves in an internet era where buying is more of a social experience.
What’s more, Chinese consumers are shifting away from global aspiration to one that’s more local driven.
Additionally, young Chinese consumers are proudly buying homegrown products that reflect their values and culture. These companies become a symbol of local identity.
In other words, there will be more and more successful local brands that will be the next blue-chips in China. Some may potentially scale globally.
Chinese companies adapt very quickly. They have learnt from global businesses which operating models work, which don’t work.
The move to an “asset-light” model is one of their key moves to remain relevant in China’s highly competitive environment.
From hotels, to F&B chains, Chinese companies have adopted unique franchising models to maintain their cost advantage.
What’s more, in this internet age, many Chinese companies use data to optimize and improve customer experience, leading to improving products and services.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
