Consumer Industry Boosts the BRI Economy

Abstract

The consumer industry is an important part of the Belt and Road Initiative (BRI). The BRI focuses on policy coordination and the connectivity of infrastructure. It aims to foster unimpeded trade, financial integration, and people-to-people exchanges. Household consumption and savings are key variables in macroeconomic growth and economic policy formulation, in our view. We think that connectivity of infrastructure will help reduce the transaction costs of consumer services, and unimpeded trade is key to meeting consumer demand through international trade. We expect financial integration to facilitate the conversion of savings into investments, and we think that people-to-people exchanges are essential to fostering cultural consumption and consumer culture. In addition, we expect consumer industry cooperation between China and BRI countries to facilitate the integration of national economic development strategies, accelerate household consumption and income growth, and enhance people-to-people and cultural communication and exchanges.

Consumer industry cooperation between China and BRI countries covers the full range of business processes, including production, sales, and procurement. Accordingly, we look at such cooperation from the perspective of optimizing global industry chains, facilitating brands’ global expansion, and capitalizing on demand from large economies (including global procurement and tourism). First, rising unit labor cost is prompting China’s consumer industry to optimize global industry chain distribution in BRI countries. This helps export China’s expertise to BRI countries, improve local labor production efficiency, and foster local economic growth. Second, we think engineering expertise has become the main driver for the growth of China’s consumer industry. The global influence of Chinese brands is improving rapidly on the back of incremental innovations in products and innovations in distribution channels (such as cross-border e-commerce). Third, as a large economy, China enjoys economies of scale and has the potential to become a major market for BRI countries. Fourth, consumption and culture are closely intertwined, in our view. We expect consumption to facilitate cultural exchanges between China and BRI countries, and familiarize people with each other’s culture.

Author: HE Wei, FAN Junhao, ZHU Yiping, LIN Sijie, LIN Jichuan, GUO Haiyan, WANG Wendan, CHEN Wenbo, HOU Liwei, WEI Yifei, HUANG Jiayuan, WANG Jiayu, HUI Pu, CHEN Yudong, WANG Jierui, CHEN Jie, SUN Yuxin, LAI Shengwei, SHUI Jiachen.

13.1 The Consumer Industry is an Important Part of the BRI

The Belt and Road Initiative (BRI) aims to facilitate common development, shared prosperity, and mutually beneficial cooperation among the participating countries. We think improvement in people’s living standards, often measured by the level of household consumption, represents an important sign of economic development.

The BRI focuses on policy coordination and connectivity of infrastructure. It aims to foster unimpeded trade, financial integration, and people-to-people exchanges. Household consumption and savings are key variables in short- and long-term macroeconomic growth and economic policy formulation, in our view. We think that connectivity of infrastructure will help reduce the transaction costs of consumer services, and unimpeded trade is key to meeting consumer demand through international trade. We expect financial integration to facilitate the conversion of savings into investments, and we think that people-to-people exchanges are essential to fostering cultural consumption and consumer culture.

We believe the consumer industry is an important part of the BRI. We expect consumer industry cooperation between China and BRI countries to facilitate the integration of national economic development strategies, boost regional market potential, accelerate household consumption growth, satisfy differentiated consumer needs, improve local employment, foster trade balance, and enhance people-to-people and cultural communication and exchanges.

This chapter focuses on the consumer industry, and discusses production, sales, procurement, and cultural exchanges, as well as possible challenges and opportunities in the context of the BRI. We also put forward relevant policy suggestions for optimizing global industry chains, facilitating brands’ global expansion, capitalizing on demand from large economies (including global procurement and tourism), and fostering cultural exchanges.

13.1.1 Optimizing Global Distribution of Industry Chains to Boost Endogenous Growth in BRI Countries

China has become a global production center for textiles & apparel, light industry, and home appliances. Driven by an aging population and rising labor cost in China, as well as regional tariff barriers, the country’s consumer industry is increasingly optimizing the geopolitical distribution of industry chains in BRI countries. We think the global distribution of production capacity for China’s consumer industry can help export China’s expertise to BRI countries, facilitate industrialization in these countries, and boost local employment. This would bring opportunities for BRI countries to overcome the bottlenecks in their development, in our view.

Through building global industry chains, China’s consumer industry may improve labor productivity in BRI countries and foster endogenous growth of local economies. To expand production capacity globally, Chinese consumer companies need to tailor their globalization strategies based on local conditions. While labor cost is an important consideration, we believe labor productivity should also be taken into account when developing such strategies. For example, the growth of labor productivity in Indonesia and Thailand over the past decade was largely on a par with that in Central and Eastern European countries (e.g., Bulgaria and the Czech Republic). However, growth in labor income in these countries was relatively slow during this period, indicating that some ASEAN countries still enjoyed advantages in unit labor costs. We think direct corporate investment in BRI countries with relatively low labor productivity may not only create synergies between capital and labor, but also help improve labor productivity in these countries through localization of factors of production such as technologies and management. This may foster endogenous economic growth in these countries, in our view.

13.1.2 Facilitating Global Expansion of Brands to Tap into Diversified Market Demand in BRI Countries

China and BRI countries vary in resource endowments and demand. We believe China and BRI countries are complementary to each other, which is conducive to driving high-quality development of these countries. Most BRI countries are rich in natural resources, while China boasts comparative advantages in manufacturing consumer goods, making the two parties complementary to each other in resource endowments and comparative advantages. For example, China could import goods and services such as commodities and agricultural products from BRI countries, while increasing its exports of consumer goods to these countries to meet growing local demand.

The consumer goods market is characterized by a diverse variety of consumption needs, fierce competition, high demand for innovation, and intergenerational differences in consumption. BRI countries are experiencing rapid population growth, and boast a relatively young demographic structure. While their total population is 2.6 times that of China, their population of people aged 15–40 is three times that of China.¹ We think China’s consumer goods industry has strength in innovation in an incremental fashion, and offers fast-evolving, high-quality, and low-price products. We thus think the industry is well positioned to benefit from the fast-growing, young, and diverse consumer markets in BRI countries.

We think a larger market can help improve the manufacturing efficiency of Chinese consumer goods, boost technological advances and product innovation, and allow Chinese firms in the consumer industry to benefit from economies of scale. We think Chinese companies can provide job opportunities for the young workforces in BRI countries, improving the synergies between China and these countries in funding, technologies, and labor force. We expect the synergies to facilitate the development of manufacturing industries and technological innovation in BRI countries, boost economic development and social welfare, and improve local people’s living standards.

We think the main driver of the growth of China’s consumer industry has transitioned from favorable demographics to engineering expertise. We are upbeat on the global expansion of Chinese brands on the back of incremental innovations in products and innovations in distribution channels (such as cross-border e-commerce). Notably, a number of Chinese brands have gained influence in BRI countries, such as Chinese TV (e.g., Hisense) and handset (e.g., Transsion) brands in Africa, as well as Chinese consumer electronics (e.g., Honor, Xiaomi, OPPO, VIVO, and Transsion), major appliances (e.g., Haier and Midea), restaurants (e.g., Haidilao), and film & TV (e.g., iQIYI and Tencent) brands in Southeast Asia.

Growing household income in BRI countries may create market potential for Chinese consumer brands to go global. Consumption is a function of household disposable income, but the two do not always move in lockstep. In 1957, Milton Friedman² published A Theory of the Consumption Function and Franco Modigliani³ propounded the life cycle hypothesis of savings and consumption. Essentially, they saw the significant intertemporal nature of household consumption, and believed that income growth tends to be largely consistent with consumption growth over a longer period of time.

13.1.3 Leveraging Large Domestic Demand and Economies of Scale to Make China One of the Major Markets for BRI Countries

The China market enjoys economies of scale, and the growth in China’s imports of goods and services from BRI countries can help to boost economic growth in these countries. Economies of scale have played an important role in China’s growth into a global manufacturing center over the past three decades. In addition to demand for industrial goods, there is also substantial demand for consumer goods in China. For example, China’s demand for agricultural products such as tropical fruits and services such as overseas travel has been trending upwards.

BRI countries vary markedly in geographical location and climate conditions, and each has its unique advantages in natural resources. Consumer industries such as agriculture and tourism are critical to economic development in a large number of BRI countries. However, restrictions relating to transportation, funding, and technologies have long prevented these countries from benefiting from international trade.

The BRI calls for interconnectivity among participating countries. We think measures such as promoting the connectivity of infrastructure and financial integration can pave the way for enhancing trade, economic development, and cooperation between China and BRI countries. We expect high-quality agricultural products, tourism, and other goods and services from BRI countries to meet growing demand in the China market.

Moreover, we believe China can leverage its large domestic demand to enhance the flow of trade, funds, goods, and data between China and BRI countries, and boost the development of these economies. We also think improved infrastructure such as transportation and logistics infrastructure in BRI countries may promote their imports of goods and services from China, and also facilitate the growth of their local economies and household income.

13.1.4 Strengthening Cultural Exchanges Through Consumption

Consumption and culture are closely intertwined, in our view. We expect consumption to facilitate cultural exchanges between China and BRI countries, and familiarize people in those countries with Chinese culture. Experience from developed countries shows that the globalization of consumer goods can enhance the global influence of certain cultures, and turn such goods into cultural symbols. European countries, the US, Japan, and South Korea have leveraged consumer goods to facilitate their cultural exports and enhance their soft power across the globe.

We think the global expansion of China’s consumer industry is conducive to exporting Chinese culture and improving the image of China in BRI countries. In the past, China’s consumer and cultural industries focused their marketing more on Europe and the US and less on BRI countries. We think Chinese consumer companies could emphasize the appeal of Chinese culture and go beyond being just the suppliers of value-for-money products and services.

For example, we think Kweichow Moutai could enhance its influence in international liquor culture, and MINISO could highlight Chinese cultural elements in its products. In addition, we think technology companies such as Xiaomi, Roborock, and Ecovacs could showcase China’s innovations in consumer goods. Moreover, we note that some Chinese cultural works have become influential internationally, including LI Ziqi’s short videos, online novels such as Battle through the Heavens, science fictions such as The Three-Body Problem, and games such as Genshin Impact. Chinese TV series have gained increasing popularity in Southeast Asia as well.

In the rest of the chapter, we will elaborate on global industry chain distribution, global expansion of Chinese brands, and demand in China as a large economy.

13.2 Labor Cost and Tariffs Drive Global Industry Chain Distribution

13.2.1 Labor Cost and Tariff Barriers Are Key Drivers of Global Industry Chain Distribution

The textiles & apparel and furniture manufacturing industries are sensitive to changes in labor cost. Garment manufacturing involves processes such as cutting, sewing, ironing, and packaging. The industry relies mainly on manual work for sewing, and labor cost accounts for a high proportion of total cost due to the soft texture of apparel and the low level of automation in the production process. The upholstered furniture manufacturing industry is also labor-intensive, and so was the home appliance industry before its transition to automated production. These industries are relatively sensitive to changes in labor cost, and are thus incentivized to build production facilities in regions with lower labor costs to improve profit margins.

Labor resources abound in South Asian and Southeast Asian countries, and labor cost in some BRI countries is much lower than that in China. According to the International Monetary Fund, people aged 15–64 accounted for 69% and 65% of the population in Vietnam and Cambodia in 2021, rising 6ppt and 8ppt from 2000.

Differences in tariffs among countries and regions also play a part in the relocation of production capacity for China’s consumer industry. Due to trade frictions in recent years, it has become more costly to export to certain countries from China than from BRI countries such as Vietnam and Cambodia. Exports from regions with low tariff rates tend to enjoy more competitive pricing, prompting China’s consumer industry to relocate production capacity to overseas markets.

13.2.2 Southeast Asia Has Been the Main Destination for the Capacity Relocation of China’s Consumer Industry

Chinese consumer goods manufacturers are expanding industry chains to distribute production capacity globally. China’s textiles industry has invested in over 100 countries and regions,⁴ including key markets such as Southeast Asia and Africa for expanding production capacity, as well as Europe, the US, and Australia for reaching consumers and improving design and technologies. We therefore think China’s textiles industry can adapt to changes in the industry chain in the long term.

In addition, large home appliance companies such as Midea and Haier have built factories around the world to facilitate product delivery, while also improving their overseas businesses through M&A. Such companies have completed large-scale construction of production facilities in Europe, the Americas, Southeast Asia, South Asia, East Asia, and Africa, and thus enjoy significant network effects.

Southeast Asia has been the main destination for the capacity relocation of China’s consumer industry. China is the world’s biggest apparel exporter, with the Chinese mainland accounting for 32.1% of global apparel exports in 2021, down 7.1ppt from the level in 2013. Bangladesh and Vietnam have captured some of the market share that China lost, accounting for 7% and 6% of global apparel exports in 2021. Light-industry companies, including suppliers of home furnishings (such as sofas and mattresses), personal care products (such as diapers), and pedelec bikes and power tools, have also opted to build factories in BRI countries such as Vietnam and Laos. In addition, China accounts for about 90% of the world’s total net exports of consumer appliances. In the audio & visual industry, about 52% of net exports come from China, 24% from Central and Eastern Europe and Türkiye, and 19% from Latin America. Southeast Asia has also become a net exporter of audio & visual products in recent years (Fig. 13.1).

Fig. 13.1

Source Corporate filings, CICC Research

Relocation of light-industry manufacturing capacity.

13.2.3 Insights from History on Capacity Relocation

Leading Chinese consumer companies have gained insights from their years of experience in overseas capacity expansion. There is a learning cycle involved in improving international business operations, in our view. While large companies tend to be more experienced, we think many small companies lack a full understanding of local policies and culture in their target markets. A learning process is thus essential to gaining such an understanding.

For example, stringent policies on environmental protection are in place in some countries and regions. Chinese companies that have successfully expanded production capacity overseas need to strictly abide by local environmental requirements and attach importance to green production. In addition, some countries and regions differ significantly from China in religion, culture, and customs. We think companies should thoroughly survey local conditions before building factories overseas, and facilitate adaption to local business environments by sending staff abroad and integrating with the local culture.

13.3 Chinese Brands Are Expanding Overseas and Tapping Market Potential in BRI Countries

13.3.1 Chinese Brands’ Global Influence is Improving Rapidly

Following China’s accession to the World Trade Organization in 2001, the country has gradually grown to become one of the world’s most important production bases for the majority of consumer goods on the back of its advantages in cost and efficiency. Along with the improvement in industry chains, China is transitioning from an original equipment manufacturing (OEM) model to an original design manufacturing (ODM) model. In recent years, China has significantly strengthened its ability to innovate in consumer goods thanks to a large workforce of skilled engineers. The global influence of Chinese internet companies has improved as well. As e-commerce begins to reshape offline distribution channels globally, Chinese consumer goods brands are rapidly gaining market share across the world by leveraging their first-mover advantages in e-commerce.

Chinese consumer brands from various industries have made inroads in their global development. Consumer electronics brands such as Xiaomi, and Transsion have moved fast to build their competitiveness in overseas markets on the back of rapid product innovations. While Chinese consumer appliance brands moved early in going global, their advancement in this regard has been relatively slow. That said, Chinese companies such as Haier and Midea have expanded their global footprint rapidly in recent years by acquiring overseas brands and developing their own brands. Meanwhile, light-industry brands have expanded overseas by leveraging the new retail model,⁵ and many cross-border e-commerce companies such as Shein and MINISO market their light-industry products online.

In the past few years, Chinese consumer brands focused their overseas expansion on developed countries in Europe and the US due to the strong spending power and standardized markets in these countries, especially the large, unified US market. However, many Chinese consumer companies have started to see rapid growth in their branded businesses in BRI countries. We think China’s consumer industry could pay more attention to the growth potential of consumption in BRI countries and regions.

Meanwhile, Chinese brands have encountered many difficulties and setbacks in their global forays. For example, after capturing a large share of the Vietnamese motorcycle market in the early 2000s with competitive pricing, Chinese motorcycle brands saw their market shares fall rapidly due to disappointing product quality. In addition, TCL acquired the French TV company Thomson in 2003, only to see its value plunge as flat-screen TVs rapidly replaced cathode ray tube TVs.

Furthermore, Chinese internet companies have faced numerous regulatory challenges overseas. Some companies expanded into industries with which they were not familiar or misjudged industry trends, while some faced the challenge of industry chain disruptions. That said, we expect Chinese companies to learn from such setbacks and forge ahead.

In the remaining part of this section, we look at consumer electronics, consumer appliances, and daily necessities, and some representative companies in these industries. We also analyze how Chinese internet companies leverage their global influence to facilitate the global expansion of Chinese brands.

13.3.2 Chinese Consumer Electronics Brands Are Engaging in Global Expansion

Chinese consumer electronics brands have been gaining global market share in recent years. A number of leading global brands such as Honor, Xiaomi, Oppo, Vivo, Transsion, TCL, Hisense, Anker Innovations, and XGIMI Technology have emerged in consumer electronics segments such as handsets, TVs, and smart accessories. For example, Chinese smartphone brands have made their name in overseas markets and showed robust growth momentum thanks to their good-value-for-money products and services, rapid product upgrades, superior distribution channels, and effective localization strategies.

We have seen strong growth of Chinese brands in both developed regions with relatively saturated markets and emerging markets with large potential. According to Counterpoint, three of the top five smartphone brands in Europe by market share in 2021 were Chinese companies, namely, Xiaomi (with a market share of 20%), Oppo (5%), and Realme (3%). In addition, their market share is steadily trending upwards. Among the top five players in Latin America by handset market share in 2021, Xiaomi ranked third and booked the fastest market share expansion to 10.5% from 6.5% in 2020. ZTE ranked fourth, booking YoY growth of 74% and market share of 4.5%. Meanwhile, the Chinese brand Transsion outperformed in Africa. According to IDC and the CICC Research technology hardware team, Transsion’s smartphone shipments in Africa totaled 11.14 mn units in 4Q21, giving it a market share of 47.9%, well ahead of Samsung, which ranked second with a market share of 19.6%.

Transsion has stood out for its overseas expansion in BRI countries, and exemplified success in BRI markets despite its lack of advantages in technologies. The firm is a leading handset supplier in Africa. According to IDC, Transsion has maintained a share of more than 40% of the African handset market for several consecutive years.⁶ In the Africa market, the firm attaches importance to its localization strategy. First, it has worked diligently to localize products. In addition to low prices, Transsion has calibrated the cameras of its handsets for darker skin tones. Some of its handsets support the concurrent use of four SIM cards since local consumers usually have several SIM cards due to the high cost of cross-carrier calls. The firm has also integrated subwoofer features into its handsets to cater to the entertainment needs of local consumers. Second, the firm pays attention to localizing distribution channels and marketing. For example, it has recruited a large number of distributors and built an extensive offline sales network, considering the offline-dominated markets in Africa and the complex offline distribution channels there. The firm has also customized its marketing strategies. For example, it has hired local singers as brand ambassadors, and focused on marketing in rural areas at first and painted its marketing murals on the exterior walls of major buildings there. We believe the success of Transsion in Africa has delivered value-for-money and better customized products to local consumers. Its success also highlights the importance of localizing product functions, distribution channels, and marketing in addition to offering value-for-money products and services for Chinese consumer brands going global, in our view.

Transsion has also developed rapidly in Southeast Asia. The region accounted for 11.2% of the firm’s handset shipments in 4Q22, up from 2.7% in 4Q19. In particular, Transsion’s market share in the Philippine jumped from 8% in 2020 to 16% in 2022, and the firm ranked among the top five brands by sales value during Lazada promotional campaigns in 2022. We think a number of factors have contributed to its success. First, by leveraging its acute insights into local consumer preferences and market trends, Transsion focused on the mass consumer markets in countries with relatively low income levels and spending power such as the Philippines⁷ when it first entered the Southeast Asia market, and launched a series of affordable handsets with stable performance and practical functions. Second, it has adopted a localized operation strategy, and established local R&D centers, marketing teams, and after-sales service centers to cater to the needs and habits of local consumers. The firm has also strengthened cooperation with local telecom operators and electronics retailers, and built stable distribution channels and sales networks.

Apart from Transsion, the market share of other Chinese smartphone brands has also been trending upwards in major Southeast Asian countries since 2013. According to Euromonitor, there were at least three Chinese brands among the top five smartphone brands by market share in the six major Southeast Asian countries in 2022. Notably, Xiaomi had the highest market share in Malaysia at 31%, while Oppo has built market shares exceeding 20% in Thailand, Indonesia, and Vietnam. While the market share of Chinese brands is still below that of Apple and Samsung in Singapore, their combined market share increased to about 20% in 2022 from less than 3% in 2013. We note that Chinese brands are gradually expanding to the premium handset market, and they appear determined to continue this effort.

13.3.3 Chinese Consumer Appliance Brands Are also Going Global

Global expansion of Chinese home appliance brands started to gain momentum after 2020. Leading Chinese home appliance companies attempted to expand their overseas presence in the 2010s, but such efforts were premature back then. The global expansion of these brands started to gain momentum after 2020 as the COVID-19 pandemic led to a significant increase in demand for home appliances in Europe and the US. By that time, China had become a frontrunner in incremental innovations for a large variety of home appliances, and e-commerce had started to reshape traditional offline sales channels in Europe and the US. These developments contributed to significant growth in China’s home appliance exports in 2020 and 2021.

Consumer appliances trail markedly behind consumer electronics in product upgrades, making it more difficult for new consumer appliance brands to crack markets with a relatively stable competitive landscape. Chinese consumer appliance brands are therefore inclined to expand globally via M&A. The consumer appliance markets in BRI countries are growing rapidly, boding well for Chinese companies to develop their own brands. Meanwhile, Chinese companies have preferred expanding in developed countries and regions via M&A, and examples include Haier’s acquisition of the home appliance businesses of GE and Sanyo, Midea’s acquisition of the home appliance business of Toshiba, Hisense’s acquisition of Gorenje, and JS Global Lifestyle’s acquisition of the small appliance business of SharkNinja.

Haier has been expanding its brands globally since 2006. Since the 2000s, Haier has started marketing its own brand globally, and building factories in the US, Thailand, Nigeria, Jordan, and Pakistan to produce and market major appliances. In the 2010s, Haier began to acquire and integrate foreign home appliance brands in developed markets to facilitate its global expansion. For example, the firm has acquired Sanyo’s major appliance business, Fisher & Paykel in Australia, the home appliance business of GE, and Candy in Europe, among others. These acquisitions have helped Haier secure some factories owned by target firms around the world, which has been conducive to furthering its globalization. In 2015, Haier Group started to designate Haier Smart Home as its global platform for home appliance businesses, and has since gradually consolidated various overseas home appliance businesses into this entity, whose spending on M&A totaled more than Rmb55 bn over 2015–2020. Haier’s M&A strategy has paid off handsomely thanks to the relatively slow changes in major home appliances and their distribution channels, and the high recognition of local brands in some developed markets. As of end-2022, Haier had 122 manufacturing centers and 30 industrial parks around the world, covering nearly 230,000 points of sale and 1 bn users and households.

In BRI countries and other developing economies, Haier attaches importance to multi-brand and localized business operation. First, the firm maintains localized business operation integrating R&D, manufacturing, and marketing, and seeks to build local product R&D laboratories, manufacturing facilities, and complete marketing networks. For example, it launched the SAP system at its manufacturing facilities in Vietnam and Indonesia in 2017. The firm held a groundbreaking ceremony for its industrial park in northern India in 2019, which reached full production capacity in 2021. Second, the firm gives full play to the advantages of acquired brands. In addition to the Haier brand, the firm markets the Japanese brand AQUA in Southeast Asia, and completed product planning for Candy in Indonesia in 2022. It has also introduced Casarte to Thailand to target different market segments and expand new markets. Third, Haier continues to build local experience stores in addition to improving its distribution system. For example, it opened its 001 store in the Philippines in 2021, put the Casarte premium smart experience center in Thailand into operation in August 2022, and debuted AQUA’s branded store in Makassar, Indonesia in February 2023.

13.3.4 Chinese Light Industry Brands Leverage Branded Retailers to Tap Global Markets

It has proven economically viable for Chinese light industry companies to go global through branded retailers. Due to the large variety of light industry products and the relatively small market for some categories of such products, we do not think it is cost effective for light industry brands to directly expand into the global market. Instead, it has proven economically viable for them to go global on the back of branded retailers such as branded chain stores (e.g., Muji of Japan). A Chinese brand, MINISO, has emerged as a global chain retailer for such products. Founded in 2013, MINISO initially benchmarked itself against Muji, but has gradually taken its own path and expanded globally. With a simple and natural design style, MINISO has grown into a branded chain retailer with more than 8800 key stock keeping units (SKUs) in a variety of product categories, including fashionable home furnishings, consumer electronics, cosmetics and personal care products, stationery, and gifts. According to Frost & Sullivan, MINISO is the world’s largest retail brand for private-label lifestyle products, with a market share of 6.7% globally and 11.4% in China measured by GMV in 2021.

MINISO began its global expansion in 2015, and has expanded to both BRI and non-BRI countries. As of June 2023, it has expanded to more than 105 countries and regions, including developed countries such as the US, the UK, Australia, France, and Singapore, as well as emerging markets such as Latin America and Southeast Asia. The number of its overseas stores has been rising steadily in recent years, with a net addition of 672 stores over 2019–2022. The number of its overseas stores reached 2027 in 2022, accounting for about 38% of its total number of stores. The share of its overseas revenue rose from 22% in 4Q20 to 40% in 4Q22. In February 2023, MINISO’s chairman and CEO Mr. YE Guofu announced the firm’s strategic focus on localizing and refining business operations in overseas markets, and developing MINISO into a super brand across countries.⁸

We think MINISO has succeeded by appealing to consumers and facilitating repeat purchases with attractive, affordable, and high-quality products and frequent innovations. In addition, its groundbreaking retail partner model has fostered rapid and standard distribution channel expansion and contributed to economies of scale. Moreover, large-scale procurement and digital tools have helped reduce cost and ensure stable and efficient supply chains. Apart from advantages in prices, MINISO has also worked diligently to differentiate its positioning and product portfolio based on local competitive landscapes and the purchasing power and preferences of local consumers.

MINISO has become successful in Southeast Asia. With the rapid rise of the middle class and changing consumer attitudes, we see large growth potential for variety stores in the retail store market in Southeast Asia. As a well-known variety store, MINISO has gained popularity among young consumers in the region thanks to its fashionable design, affordable prices, and quality services. The firm’s “high-quality and low-price” strategy aligns with local spending power, and its fashionable and practical designs appeal to young consumers. Furthermore, the firm has leveraged its innovative retail partner model to expand to major commercial districts and shopping malls, thus rapidly expanding its distribution channels and market share. In Vietnam, for example, MINISO has worked diligently on marketing, and improved its brand influence and popularity on the back of endorsement by famous singers, strategic cooperation with Vincom (shopping malls of Vietnam’s largest real estate group), simple store decoration, and convenient shopping experience. The rise of MINISO has ended the long-term dominance of Daiso (a Japanese brand) in the market, making the former a new leader in the retail market for light industry products in Southeast Asia. Notably, MINISO’s market share gains in the two major markets of Indonesia and Vietnam have been the most significant. According to Euromonitor, MINISO’s market share in these two markets jumped to 87% and 39% in 2022 from 16 and 17% in 2016.

13.3.5 Globalization of China’s Internet Industry Fosters Overseas Expansion of Chinese Consumer Goods Brands

China’s globally competitive internet industry has facilitated the global development of Chinese consumer goods brands. China’s internet industry—which includes the e-commerce, long video, short video, and online game segments—is globally competitive and growing. The development of e-commerce has reshaped the structure of distribution channels of overseas consumer goods markets and brought advantages to e-commerce-savvy Chinese companies. Moreover, Chinese companies’ deep understanding of the value of internet branding gives them an edge in marketing their products and brands.

The global e-commerce and cross-border e-commerce markets have grown substantially after the COVID-19 pandemic. While the US and Western Europe represent the most important markets for cross-border e-commerce, other regions are also growing rapidly. This major cycle of development has seen the rise of signature companies such as Shein and Anker Innovations.

The market potential of BRI countries and regions should not be overlooked, in our view. Despite relatively low internet penetration, e-commerce is growing rapidly in these countries and regions. In particular, Southeast Asia is characterized by its enormous population, swift economic development, and close geographical proximity to China. As a result, the Southeast Asia market has become a focus of business development for most leading Chinese internet companies, and these companies are playing an active role in the internet industry in the region. For example, Chinese leaders in long videos such as iQIYI and Tencent Video are growing rapidly in Southeast Asia, and rivaling European and US peers such as Netflix, HBO, and Disney. In addition to releasing Chinese TV series in Southeast Asia, iQIYI and Tencent Video have also started local production of TV series and invested in local TV series.

While Southeast Asia’s e-commerce industry trails behind that of China, it is growing rapidly at a similar pace to that of China’s e-commerce industry back in the 2010s. In 2022, excluding food and beverages, the e-commerce penetration rate averaged about 20% in Southeast Asia as a whole, and approached about 30% in frontrunners such as Indonesia and Singapore, followed by the Philippines, Thailand, and Vietnam, with e-commerce penetration rates of about 15%.⁹ However, they still lagged behind the penetration rate of 47% in China. Shopee, the largest e-commerce platform in Southeast Asia, has received strategic investment from Tencent, and is learning from China’s successful e-commerce expansion through cross-regional experience exchanges. Meanwhile, Alibaba has a controlling stake in Lazada, the second largest regional e-commerce company in Southeast Asia. The company has integrated Lazada into its global e-commerce ecosystem. Through Lazada, Southeast Asian consumers can access popular products on Taobao and Xiaohongshu, and directly contact Chinese online merchants to purchase Chinese products.

13.4 China’s Large Demand Can Create a Win–Win Situation Between China and BRI Countries

13.4.1 Non-staple Agricultural Products

China has seen steady growth in consumption of agricultural products and growth in demand for imports of such products. The country is the world’s most dynamic market for food and agricultural products, and the largest importer of agricultural products. Despite self-sufficiency in staple grain, China still needs to import a large volume of non-staple agricultural products amid consumption upgrading. The consumption of agricultural products in China has been rising steadily since 2015 and reached 2.2 bnt in 2022, with a CAGR of 3.1% over 2015–2022.¹⁰ In addition, China’s imports of agricultural products have been expanding since 2015, and the import value of agricultural product reached US $224 bn in 2022 with a CAGR of 11.4% over 2015–2022.¹¹

China’s overall imports of agricultural products have been growing faster than its consumption volume, which we attribute to changes in the consumption structure of agricultural products, driven by strong demand for and rapid growth in the consumption of non-staple agricultural products. Moreover, due to differences in resource endowments, China relies mainly on imports to meet its demand for some non-staple agricultural products, and this may have fueled the rapid expansion of the country’s overall imports of agricultural products.

Imports of non-staple agricultural products play an important role in meeting the growing needs of domestic households amid consumption upgrading in China. Along with the changing diets of Chinese households, demand for traditional staple food is stabilizing, while demand for non-staple agricultural products is increasing. We note the growth in China’s per-capita consumption of meat, poultry, eggs, dairy, aquatic products, and dried and fresh fruits has outpaced that of overall agricultural products. Data from the National Bureau of Statistics shows the proportion of per capita consumption of meat, poultry, eggs, dairy, aquatic products, and dried and fresh fruits rose to 7.9%, 3.0%, 3.2%, 3.5%, 3.4%, and 14.7% in 2021 from 7.0%, 2.0%, 2.3%, 3.2%, 2.9%, and 11.2% in 2013.

Imports of these non-staple agricultural products have also grown faster than those of overall agricultural products. Data from the General Administration of Customs shows the proportion of imported agricultural products such as meat and edible offal, aquatic products, edible fruits and nuts, dairy & eggs, and coffee, tea & spices rose to 13.8%, 8.4%, 7.4%, 4.3%, and 0.7% in 2022 from 6.5%, 6.0%, 5.7%, 3.1%, and 0.4% in 2015, effectively mitigating the pressure on domestic agricultural resources. On the other hand, China’s per-capita supply of non-staple agricultural products remains relatively low. Data from the Food and Agriculture Organization of the United Nations shows China’s per capita supply of beef, poultry, and coffee and related products was 6.75, 15.63, and 0.13 kg in 2020. According to Euromonitor, per-capita consumption of dairy products in China was US $70.4 in 2022.

BRI countries are important suppliers for China’s imports of non-staple agricultural products. Data from the General Administration of Customs shows BRI countries supplied 33% of China’s livestock and poultry meat imports in 2022, mainly frozen beef from Argentina and New Zealand. BRI countries also accounted for 64% of China’s import value of aquatic products; the top three suppliers were Ecuador (mainly prawns), Russia (mainly cod), and Vietnam (mainly balsa), taking up a share of 19%, 15%, and 9%, respectively. At the same time, about 68% of China’s egg and milk imports came from BRI countries. Raw milk for dairy foods processing in China is in short supply, and we expect a shortfall of 21 mnt, or 33.6% of total demand for raw milk in 2025. We see substantial demand for importing milk powder and dry cheese to produce dairy products such as dairy drinks and ice cream. In addition, BRI countries supplied about 91% of China’s fruit and nut imports, including durian, coconut, and fresh longan from Thailand; cherries from Chile; dragon fruits from Vietnam; and bananas from the Philippines. They also accounted for about 50% of China’s coffee, tea, and spice imports, such as coffee from Ethiopia and Vietnam and cardamom from Indonesia.

China’s imports of fruits have also bolstered the economy in BRI countries. For example, Thailand is a major supplier of imported fruits for China, especially durians. Along with rising domestic demand for fruits, China’s fruit imports from Thailand are increasing rapidly. According to the Ministry of Commerce of Thailand, Thai fruit exports to China totaled THB133.7 bn in 2022, or 88% of the country’s total fruit exports. Notably, Thailand’s durian exports to China amounted to THB106 bn, or 96% of its total durian exports.

China’s imports of non-staple agricultural products from BRI countries have helped improve supply chains in these markets and contribute to their sustainable development through technology exports. For example, China’s fisheries industry has organized more than 148 multilateral and bilateral foreign aid and training projects, and has trained over 4000 senior fishery management officials and technicians for 137 countries and regions (mostly BRI countries and regions) since 1981. Following years of output growth, the aquaculture industry in some countries such as Vietnam is suffering from overfishing, insufficient resources, and environmental pollution, while China has comprehensive research achievements in breeding high-quality varieties, preventing and controlling diseases of aquatic animals, and improving the quality of aquatic products. Since the launch of the BRI in 2013, China and Vietnam have jointly carried out five fish stocking exercises in the Beibu Gulf (including 226 mn aquatic seeds from China) to effectively enhance fishery resources in Beibu Gulf and benefit fishermen of the two countries (Figs. 13.2 and 13.3).¹²

Fig. 13.2

Source General Administration of Customs, CICC Research

BRI countries are important suppliers of China’s imports of non-staple agricultural products.

Fig. 13.3

Source General Administration of Customs, Ministry of Commerce of Thailand, CICC Research

A high proportion of BRI countries’ exports are destined for China, with China’s demand for imports bolstering their economies.

13.4.2 Tourism

We see large market potential in China’s outbound tourism compared with developed countries. The rapid development of China’s economy has boosted the spending power of outbound Chinese tourists. According to the United Nations World Tourism Organization (UNWTO), per-capita spending of outbound Chinese tourists was US $1954 in 2015, higher than that of outbound tourists from the US, France, South Korea, and India. It fell mildly to US $1647 in 2019, but was still higher than the US $1326 for outbound tourists from the US and US $1328 for outbound tourists from Canada. The penetration rate of outbound travel in China rose from 4.3% in 2010 to 11% in 2019, implying sizable market potential compared with penetration rates of 30% in the US and 72% in Canada.

More importantly, there is substantial market potential in tourism consumption by Chinese tourists in BRI countries. Overall, Chinese tourists prefer to visit developed countries and regions such as Europe, the US, and Japan as their choice of destination for outbound tourism, and their tourism related spending in BRI countries and regions is relatively low, implying large potential for growth. The number of Chinese tourist arrivals in BRI countries has been rising year by year. According to CEIC, the number of Chinese tourist arrivals in major BRI countries such as Thailand, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Vietnam, South Korea, and Russia grew to 37.63 mn in 2019 from 16.63 mn in 2013, and their proportion in China’s total outbound trips rose to 22.2% from 16.9%. In addition, the China National Tourism Administration forecasted in May 2017 that Chinese tourist arrivals in BRI countries may total about 150 mn during the 13th Five-Year Plan period (2016–2020), and their tourism related spending may approach US $200 bn. We estimate per-capita spending by Chinese tourists in BRI countries at about US $1333 in 2019, implying high growth potential compared with the per-capita spending of US $1972 by Chinese tourists in Japan and US $12,000 in the US. In 1H19, Chinese tourists’ overseas spending totaled US $127.5 bn, including US $14.9 bn or just 11.7% of the total in BRI countries.

Chinese tourists have facilitated economic development in BRI countries. According to the China Tourism Academy, broadly-defined international tourism revenue of BRI countries reached US $385.1 bn in 2017, with 30.8% attributed to Chinese tourists.¹³ Data from World Travel and Tourism Council (WTTC) shows tourism contributed to 14.1% of overall employment and 14.9% of overall GDP on average in BRI countries in 2018. In order to meet the growing needs of Chinese tourists for outbound travel, BRI countries have improved their service industries to provide better services and travel experience, and to ultimately attract more Chinese tourists. For example, some countries have introduced electronic visas for Chinese tourists to facilitate their entries and exits(such as Thailand), enhanced road transportation and infrastructure, and optimized digital payment methods such as mobile payment and digital wallets.