[JD Says] Consumption Upgrading Offers Huge Opportunities
According to the Government Work Report of 2017, one of government’s major tasks this year is to further unleash the potential of domestic demand.
To that end, the government will push to see that the composition of supply becomes better matched with the composition of demand and that consumption upgrading and effective investment reinforce each other, promote coordinated development between regions and between rural and urban areas, and strengthen the role of domestic demand in sustaining growth.
As is noted, it is both necessary and possible to expand China’s domestic demand given the long-time huge potential in this area. The key is to know where to start. The government need to increase consumer spending to improve people’s livelihood, and boost investment to strengthen areas of weakness and sustain development, so that the expansion of domestic demand becomes more effective and sustainable and supply-side reform and demand-side regulation reinforce each other.
To promote a steady increase in consumer spending, adapt to changes in consumer demand, improve government policies and measures, and create a better consumer environment, the government will take measures as follows:
First, speed up service consumption development
Efforts will be made to launch a new round of trials for comprehensive reform in the service sector, and support the non-governmental sector in providing education, elderly care, healthcare, and other services. The government will encourage development of new service models and cross-sectoral integration, combined medical and elderly care services, cultural and creative services, and other emerging forms of consumption; improve tourist facilities and services, and make a big push to develop rural tourism, recreational tourism, and all-for-one tourism; increase information consumption including digital homes and online learning; see that communities and rural areas have better access to e-commerce and express delivery services; and encourage integrated development of brick-and-mortar shops and online stores.
Second, boost quality products consumption
Efforts will be made to guide enterprises in increasing the variety of products, improving their quality and building up brand recognition. More products sold domestically should be produced on the same production lines, meet the same standards, and be of the same quality as the products for export in order to better satisfy the needs of consumption upgrading.
Capture the latest changes of consumer market
Consumption upgrading constitutes a crucial driving force for China’s economic development at present. According to figures released by the State Statistical Bureau, in 2016, 64.6% of China’s economic growth was contributed by its total consumer spending.
Since the reform and opening up, consumer spending has been on the rise while consumer habits and concepts also undergone palpable changes. At first, with limited choices on the market, consumers focused on the invention of new products, such as television, refrigerator and other domestic appliances. In recent years, with more choices and a deeper pocket, consumers begin to focus on the upgrading of existing products. The demand for products with a better design and better functions has become order of the day.
Over the past decade, JD Capital has invested in over 40 consumer goods companies, among which 10 have been listed on the stock market. When the booming real estate market drove up demand on the home improvement market, for example, JD Capital was quick to seize the opportunity and made investment in promising home improvement companies. Now the foresight of JD Capital has paid off as most of these investees had become leaders in their own sectors. For example, Monarch Sanitary Ware Company is leading in China’s sanitary ware industry; Chengdu Fusenmei Home Improvement Company has become the largest home improvement product retailer in Sichuan Province; and Universal Marble & Granite Group stands as the most recognized brand in China.
Keeping a close eye on the latest trend on consumer market, JD Capital helps upgrade quality consumer goods companies. JD-Capital-invested Shanghai Rongtai Health Technology Corporation, a local high-technology massage products provider, has upgraded itself with JD-Capital’s support and established a global sales network covering Southeast Asia, the Middle East, Europe, North America, etc. In the future, Rngtai plans to acquire quality companies in its industry or related industries, aiming to become an industrial pace-setter amid consumption upgrading.
Follow the new trend of service consumption
This year, the government will speed up the development of service consumption, and support the non-governmental sector in providing education, elderly care, healthcare, and other services. Fields with increasing demand and immunity from economic cycles are expected to become new investment destinations.
The government will also promote tourism consumption, information consumption and consumption of high quality products. It can be expected that the upgrading of consumer habits and experience will usher in a new revolution that transforms China’s consumer industry.
The old saving-and-investment driven growth model of China has fundamentally changed. Physical goods consumption no longer dominates China’s consumer market; instead, service consumption is now of equal importance. New growth points are emerging in areas from clothing, food, to shelter and transportation, which means huge opportunities for PE firms.
The generation born after the 1980s and 1990s have become the largest consumer group in China, driving up consumption in tourism, film, entertainment, recreation and other sections, of which middle and high end consumption represents an increasingly large part. While middle-aged and teenager consumers are leading the trend of consumption upgrading, population aging boosts demand in health care and elderly care industries, particularly high-end services. After having their basic needs satisfied, most people are pursuing services of better quality, hence the huge market in this regard.
Demographic structure changes have brought about changes in education and infant consumption. On one hand, as the current low fertility rate in China leads to increasing input in child education, demand for diverse non-governmental education services will be on the rise. One the other hand, the “second child” policy promises to boost infant consumption in the future.
In a word, all consumer groups in China, no matter the middle aged, teenagers, the elderly, preschoolers or school-age children, are all contributing new consuming demand and growth opportunities. This constitutes the keystone for China’s steady and sustained economic growth in the days to come. This trend also brings forth investment opportunities that equity investment organizations cannot afford to miss. By participating in and benefiting from the growth of leading companies in different sections through investment, PE firms will be able to develop by leaps and bounds amid the trend of consumption upgrading.
- Jiuding Group
- JT Asset Management
- JX AMC