Our analysts believe China’s consumption upgrades will translate into three key changes. These changes happened in Japan in the 1970-80s, and according to Premier Li Keqiang, are key to China’s future economic growth as well. They also highlight seven key sector beneficiaries from this theme, with 13 top Buys.
Three Key Changes in China’s Consumption Upgrade Trends
Our analysts believe that the upgrades will translate into shifting spending patterns, with more:
1) Attention on health and happiness,
2) Consumption of services, and
3) Product (and service) upgrades.
Human desires can classically be illustrated in a pyramid, with fulfilment of basic needs leading to pursuit of the next level. The team believes that China passed an inflection point in 2012 with: 1) rising wealth levels (household disposable income surpassing USD10k, Fig. 17*) and 2) fulfilment of the most basic needs (major household electronics reached full penetration, Fig. 18*). This led consumers to look more towards “safety” needs (ie, health, happiness), rather than “physiological” needs (ie, food, clothing, shelter). That is the “consumption upgrade” to which Premier Li Keqiang has referred to on multiple occasions – and which he believes is key to future economic growth. This is also what occurred in Japan during the 1970-80s. We believe this change in consumption patterns will have a seismic impact on consumerism in China, and hence highlight three key shifts, from: 1) Survival to Well-being, 2) Products to Services, and 3) Trial to Upgrade.