China equities outlook How is Gen-Z driving China’s consumer market?

Consumer sector is a focus for our China equities team so paying attention to new groups of consumers and their behaviours is important. Which companies are well-liked by the Gen-Z Chinese?

05 Oct 2020

We are long-term investors and that means we are always looking forward to future opportunities. 

Since the consumer sector is one of primary areas of focus, we pay attention to new groups of consumers and their behaviors. Focusing on these groups gives us a sense of how the consumer sector will evolve and which companies are best placed to cater to them. 

Currently, the main group of consumers are those born in the 1970s and 1980s. But the new generation born in the late 1980s and 1990s are becoming the mainstream consumer group in China.

Gen-Z and Millennials  make up 40% of China's consumer base

Demographic

Demographic

Age

Age

Population Size, mn

Population Size, mn

Share of Total Population

Share of Total Population

Demographic

Born in 2010-2020

Age

0-9

Population Size, mn

171

Share of Total Population

12%

Demographic

Gen Z: Born in 1996-2010

Age

10-24

Population Size, mn

254

Share of Total Population

18%

Demographic

Millennials : Born in 1981-1995

Age

25-39

Population Size, mn

327

Share of Total Population

23%

Demographic

Born in 1966-1980

Age

40-54

Population Size, mn

340

Share of Total Population

24%

Demographic

Born in or before 1965

Age

55+

Population Size, mn

349

Share of Total Population

24%

Demographic

Total Population

Age

All ages

Population Size, mn

1,439

Share of Total Population

100% (rounded)

China equities outlook Young generations are becoming mainstream consumers

These ‘Generation Z’ and Millennial groups made up 40% of the total consumer base in 2019. Importantly, these groups grew up as China’s economy surged, living standards improved, and internet access widened.

That’s significant for a couple of key reasons. Firstly, these generations are spenders rather than savers, largely because we believe they are more optimistic about the future than elder generations. Secondly, they grew up with the internet, spend a lot of time online reviewing, comparing and purchasing products, and can quickly accept new innovations.

‘% of online spending accounted for overall surveyed consumers’ monthly expenditure,

% of Age Group

Source: Consumer Survey, Minerva Analysis as of Jun 2020

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China equities outlook China’s e-commerce market is the largest and still has room to grow

Compared to their parents, these younger generations are more influenced by information in the virtual world and are more inclined to spend online, and we expect they will become they will become the mainstream consumer group over time. 

Additionally, most online shoppers in China are located in first-tier cities, like Shanghai and Beijing, meaning that online penetration in lower-tier cities remains low and has space to grow. So as younger consumers become mainstream and online shopping expands into lower-tier cities, we expect that China’s e-commerce sector will continue to grow in the future.

China equities outlook Online platforms offer innovative sales channels

Online feedback is one of the key factors when making a consumption decision, others include quality and brand image. In this context, livestreaming is becoming one of the most popular ways to stimulate consumption in China.

Livestreaming combines the experience of shopping, socializing and entertainment into an online show broadcasts directly to viewers.

In the broadcasts, hosts and key opinion leaders give live product reviews, make recommendations, and interact with viewers. Importantly, these shows give viewers confidence in products and help drive sales. For example, iMedia estimates that livestreaming broadcasts generated USD 61bn of sales in 2019, and sales may double in 2020 as livestreaming become even more popular under the pandemic.

China equities outlook COVID-19 has accelerated long-term behavioral changes

COVID-19 has changed many aspects of daily life across the globe, including China. More specifically, it has accelerated behavioral changes in a matter of months that usually take years.

For example, students are studying online, workers are working from home, and online gaming and shopping has become increasingly common.

For investors, it is now increasingly important to have the foresight to anticipate future behavioral changes to be positioned appropriately to capture these changes. In this context, bottom-up, on-the-ground research in China is more important than ever.

Invest in China's Gen-Z consumer story

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