“With the growth of the middle class and rising incomes, Chinese consumer behaviour has undergone notable changes in recent years.”

As the Chinese economy slows down, its structure is undergoing major changes. The traditional investment-driven growth model is gradually giving way to a consumption-driven one. Household consumption is not only taking a greater share of the economy, it has increasingly become a dominant driver of China’s growth.

This transition, from a long-term perspective, is driven by the shift in China’s demographic structure, with a shrinking working-age population and a rising old-age population. The rise in consumption is being boosted by solid income growth in China, which is partly due to the reversal of labour market conditions from surplus to shortage. China’s middle class is expected to number some 630 million by 2022.

With the growth of the middle class and rising incomes, Chinese consumer behaviour has undergone notable changes in recent years. As income grows, consumers move to higher-quality products that have better brand-recognition and bring better experiences. For instance, private car ownership is rising rapidly, but sales of SUVs, which tend to be bigger and more expensive, are growing even more quickly.

The favourable conditions that underpinned China’s rapid economic growth in the past are gradually disappearing. However, at the same time, Chinese household consumption is set to enjoy continued strong growth. This can be played through several investment channels. There are the e-commerce giants, the internet leaders in distributing games/ tourism packages and auto dealers, many of them listed in the US as ADRs .

There are also regional brand leaders in cosmetics/apparels/accessories/jewellery that are competitive against the traditional global brands. Some are Chinese and listed in Hong Kong, but there are also Japanese, Korean and even Thai corporates performing extremely well in China.

Finally, there are the more traditional “brick and mortar” shopping mall and department stores operators, which face strong competition from e-commerce in Tier-one cities but are recording booming growth in Tier-two and Tier-three cities. Those shopping mall assets can be found in REITs , in specialised listed names, but also as part of the assets of large Chinese property developers.

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