Viewing the current state of Chinese consumption from global consumer brands

From an industry perspective, the sales growth of fast-moving consumer goods, cosmetics, consumer electronics, automobiles, and luxury goods in China is generally weaker than the global average. The performance of international industry giants in the Chinese market generally presents a pattern of "luxury goods < automobiles ≈ consumer electronics < cosmetics < fast-moving consumer goods." From a regional perspective, consumption in first-tier cities and western and eastern regions is under pressure, with the degree of recovery from scars effects and the impact of housing prices affecting consumption growth. Historically, China's consumer policies can be divided into direct subsidy types and encouragement and support types. The current round of consumption promotion policies continues the previous tone, and we estimate that this round of equipment updates may boost annual consumption growth by about 1.2 percentage points. The measures to promote trade-ins and service consumption from the Political Bureau meeting have been partially implemented, and future attention will be on the deployment related to "increasing residents' income through multiple channels, enhancing the consumption capacity and willingness of middle- and low-income groups" proposed by the Political Bureau meeting.

▍ From an industry perspective, the sales growth of fast-moving consumer goods, cosmetics, consumer electronics, automobiles, and luxury goods in China is generally weaker than the global average.

In the fast-moving consumer goods sector, the sales growth of representative fast-moving consumer giants in China is weaker than the global average growth. Procter & Gamble's sales in Greater China fell by 8%, while Unilever's sales in China recorded a "mid-single-digit decline," but food fast-moving consumer goods consumption shows strong resilience. In the cosmetics sector, the performance of global cosmetics giants in China is also lower than the global average. Mid-range and high-end brands L'Oreal and Estee Lauder recorded low single-digit growth, while Shiseido and Coty Group saw a year-on-year decline, and the mid-to-low-end brand Amorepacific experienced a significant decline, possibly under greater pressure from domestic brands. In the consumer electronics and home appliances sector, global giants are generally under pressure in the Chinese region, with Apple's revenue in Greater China declining by 6.5% and Hitachi Group's sales in China dropping by 14%. In the automobile sector, the performance of global automotive giants in China is generally weak, with only Audi's sales in China outperforming the global average among the sample companies, and the performance of high-end brand Porsche is particularly sluggish. In the luxury goods sector, the performance of global luxury goods giants in China is below the global average, with the main watch and jewelry retailer Richemont showing a particularly significant decline.

▍ From a regional perspective, consumption in first-tier cities and western and eastern regions is under pressure, with the degree of recovery from scars effects and the impact of housing prices affecting consumption growth.

Looking at regional social retail data, consumption growth in various regions and cities is generally low. In the first half of this year, the average social retail growth rates in the eastern, northeastern, central, and western regions were 1.6%, 3.4%, 4.7%, and 2.2% respectively. The average social retail growth rates in first-tier cities, sample second-tier cities, and sample third and fourth-tier cities were -0.4%, 3.9%, and 2.5% respectively. Looking at per capita consumption expenditure including service consumption, service consumption is stronger than goods consumption, with higher growth rates in major tourist provinces, reflecting strong demand for resident service consumption and high enthusiasm for tourism. The degree of recovery from scars effects and housing prices may be important variables affecting consumption growth. We found that provinces with higher urban residents' income growth rates in the first half of 2024, compared to the recovery levels from 2020 to 2023, tend to have higher consumption growth rates. Provinces with greater year-on-year declines in housing prices tend to have lower per capita consumption growth rates ▍ In the history of our country, commonly used consumer policies can be divided into direct subsidy and encouragement and support categories. The current round of consumer promotion policies continues the previous tone. We estimate that this round of trade-in promotions or stimulating social retail sales will increase the annual growth rate by about 1.2 percentage points.

In the history of our country, commonly used consumer policies can be divided into direct subsidy and encouragement and support categories. The former mainly involves durable consumer goods such as automobiles and household appliances, while the latter mainly involves emerging industries, new consumption formats, and service consumption. The current round of consumer promotion policies continues the previous tone. We estimate that this year's trade-in subsidy scale accounts for about 2.3% of the relevant sector's retail sales scale, and is expected to drive the annual growth rate of automobiles and household appliances retail sales by about 3.2 percentage points, contributing approximately 1.2 percentage points to the overall retail sales annual growth rate. The effects of encouragement and support policies are more about cultivating long-term consumption momentum and optimizing residents' consumption structure, with relatively limited short-term stimulus. The measures to promote trade-ins and service consumption from the Political Bureau meeting have been partially implemented. Subsequent attention will be on the Political Bureau meeting's deployment of "increasing residents' income through multiple channels, enhancing the consumption capacity and willingness of middle- and low-income groups."

▍ Tracking Macroeconomic Operations: Flat Price Data, Weakening External Demand.

In July, China's core CPI year-on-year growth rate declined, mainly affected by durable goods, rent, and service items. The PPI remained negative on a month-on-month basis, mainly due to the resonance of internal and external factors driving the decline in upstream industrial product prices. The marginal decline in global manufacturing industry prosperity dragged down the 1.6 percentage point decrease in export growth rate in July. The marginal decline in the export chain prosperity, and the rise in import growth rate, was mainly due to semiconductor-related companies stocking up early in anticipation of strengthened US export controls. This week, the market is focused on China's July price and import-export data, as well as the reversal of the yen carry trade. Next week, the focus will be on China's July financial data and the US July CPI data.

Analysts

Yang Fan Practicing License Number S1010515100001

Maxigova Practicing License Number S1010520100001