Delta #5 2024: Chinese Consumption
NDRC issues notice to promote consumption
On June 24, the National Development and Reform Commission and other departments issued a notice on "Measures to Create New Consumption Scenarios and Cultivate New Growth Points in Consumption" (hereinafter referred to as "Measures").
This department promulgates a lot of the commercial reforms in China, and can provide forward policy guidance.
The Measures outline a strategy to cultivate new consumption scenarios around traditional consumption and service consumption related to residents' food, clothing, housing, and transportation. The aim is to:
Develop a batch of new consumption scenarios with broad driving effects and high visibility.
Promote typical cases with distinct characteristics and outstanding market leadership.
Support the rapid development of leading enterprises in consumption with strong innovation capabilities and good growth potential.
Promote the continuous emergence of new business formats, models, and products in consumption.
Continuously stimulate the vitality of the consumer market and the potential of enterprises.
It is common for proposed reforms to be on a very high-level principles basis, with concrete implementation up to local authorities to decide.
Key tasks include cultivating six new consumption scenarios:
Catering consumption
Cultural tourism and sports consumption
Shopping consumption
Bulk commodity consumption
Health, elderly care, and childcare consumption
Community consumption
Specific measures for each scenario:
Catering consumption: Develop segmented areas of catering consumption and support intelligent upgrades in the sector.
F&B businesses (e.g., Haidilao 6862.HK) and upstream suppliers like catering robots, menu ordering services and F&B consultancies may benefit. The likes of Meituan 3690.HK would also have exposure.
Cultural tourism and sports consumption: Deepen the integration and innovation of tourism formats, promote quality improvement and efficiency enhancement in urban and rural cultural tourism, improve inbound tourism convenience, and expand cultural entertainment and sports consumption space.
Both online (Trip.com TCOM) and offline tourist agencies would be impacted, as well as travel and hotel providers (e.g., Atour ATAT, Huazhu HTHT). Owners and operators of attractions such as casinos in Macau may also benefit but face greater uncertainty, while gaming players such as Tencent TCEHY and Netease NTES may also be positively affected.
Shopping consumption: Promote diversified and integrated development of shopping consumption, expand shopping experiences using new technologies, and cultivate domestic "trendy product" consumption.
Players in ecommerce (e.g., Alibaba BABA, JD.com JD, Pinduoduo PDD), offline retail and travel retail (e.g., China Duty Free 601888.SS) may be impacted. These sectors are currently seeing price wars, with leading players preferring market share to profits.
Bulk commodity consumption: Expand new scenarios for automobile consumption, enrich home decoration and furnishing consumption scenarios, and create new scenarios for electronic product consumption.
The ecommerce players may be impacted, as well as smart home brands (e.g., Xiaomi 1810.HK XIACY, Midea 000333.SZ and Haier 1169.HK); these may also benefit from any future “trade-in” stimulus policies.
Health, elderly care, and childcare consumption: Promote health consumption development, expand new scenarios for senior citizen consumption, and actively develop childcare consumption.
Healthcare providers and insurance providers could be the plays. Medical device and CRO players probably safer for generalists, while biotech specialists may be more interested in deeper earlier stage pharma plays. elderly care has a longer term tailwind from the aging population, while lower fertility rates mean that demand will likely move towards premium providers.
Community consumption: Improve convenience services in urban communities and optimize consumption environments in rural communities.
Logistics providers (e.g., ZTO express ZTO, SF 002352.SH) could be one way to go; they are also benefiting from substantial increases in delivery volumes due to the ecommerce price wars. Convenience stores were in vogue but now customers are moving to buying in bulk from big box retailers.
The Measures emphasize encouraging local areas to summarize best practices in creating new consumption scenarios and cultivating new growth points. They aim to leverage the demonstrative role of advanced regions and outstanding enterprises. The document also supports relevant departments and local authorities in collaboratively conducting policy-based pilot demonstrations and practical explorations, strengthening comprehensive financial support for bulk consumption and service consumption, and reasonably reducing land costs and institutional transaction costs for enterprises in the consumption sector in accordance with laws and regulations.
Potential forms of support for business are outlined. With the apparent emphasis on volume, lower tier cities and players that can still be profitable serving these segments would be well-positioned for growth.
Summary
The following sectors look especially interesting and may gain from a tailwind;
Short term: logistics players - ecommerce delivery volumes not priced in.
Medium term: big tech - still cheap and priced at very attractive levels; to be seen if gaming is positively affected, which would be a game-changer.
Long term: health and elderly care, robotics - aging population combined with R&D-driven strategic sectors protected by moats or are early enough for margin compression to not be a major downside.
Full disclosure: We have no current business relationships with the companies mentioned in this note, and are not paid to write this piece (other than paying fellow exponents of the research). We may buy or sell securities mentioned in this piece without notice.
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