China's consumers - Taking a closer look


As investors it’s important for us to go beneath the headline figures to get a fuller picture of China’s consumption story.

Chinese consumers are playing an increasingly prominent role in their country’s economy – as a result, what they earn and where they spend it is coming under even closer scrutiny.

Our investment decisions are made based on fundamental, bottom-up analysis of companies. However, it is important to sense check our investment theses against market and macro data from a variety of sources. The most recent data broadly shows a healthy picture over the last five years, with income and expenditure both rising steadily. But as investors it’s important for us to go beneath the headline figures to get a fuller picture of China’s consumption story.

Incomes are going up – but some more than others

Since 2013, per capita disposable income (all income for the purpose of expenditure & savings) has risen to 28,228 yuan, a nominal compound annual growth rate (CAGR) of 9%.* However, this rise masks a potentially significant change.

While the top and bottom quintiles have seen a relatively steady growth rate over the last five years, the middle-income grouping (comprising 60% of the population) saw significantly lower growth in 2018.

Taking a longer-term view, this would appear to be a reasonably steep decrease in growth rate, which proves a potential headache for the Chinese government and its plans for economic growth. While low incomes could be given a boost via social-security payments and higher income groups tend to have more diversified income sources, the middle-income bracket is harder to influence centrally.


This needs to be seen within the wider context of the slowdown in GDP growth. Rather than everyone sharing in the pain, it is clear that the middle-income group has borne the brunt of China’s slowdown over the last year. Although the reasons for this are complex and – if sustained – may have wider political implications, such analysis can help to inform our investment research.

Growth in disposable income by population quintile

Source: The National Bureau of Statistics of China Press Releases

Where are we looking for opportunities?

However, the high-income group of consumers continues to see strong growth in disposable income. Not only that but it also accounts for just under 50% of total spending power in China. Consequently, companies that are disproportionately exposed to this group can offer more sustainable sources of growth.

One area particularly popular with high-income consumers is premium cosmetics, notably Korean beauty products. These have the dual advantage of being more suitable for typical Chinese skin tones relative to Western alternatives, while also benefiting from a perception of being higher-quality relative to domestic brands.

One prominent example is Korean manufacturer LG Household & Health Care, which has seen strong, sustainable growth in its duty-free sales and is also rapidly expanding its direct sales in mainland China – where the majority of its sales come from its luxury cosmetics brand ‘The history of Whoo’.

Consumers are shifting where they spend their money

Understanding the changes in how disposable income is spent can also aid our understanding of potential investments. Expenditure has grown broadly in line with income, at a CAGR of 8.5%, while consumer prices have increased by a CAGR of 1.8%.*


And there are some clear trends in spending patterns emerging. Two categories, have seen a meaningful increase in proportionate spending. Housing (China’s property market has seen prices rise substantially in recent years) and healthcare/medical spending (aided by beneficial government policies), are both now a larger part of the spending mix.

Meanwhile transport and education, culture & recreational spending have also seen larger increases.

At the same time, spending on staples – food, tobacco, alcohol and clothing – have grown at a slower rate, and declined from 38.0% of total spend in 2015 to 34.9% in 2018.* However, this rise masks a potentially significant change.

Breakdown of Expenditure

Source: The National Bureau of Statistics of China Press Releases

Where are we looking for opportunities?

As bottom-up stockpickers, our approach is based on company fundamentals rather than a top-down sector approach. This means that, even in those sectors which are challenged, we are able to find good examples of companies experiencing sustainable growth.

For example, despite slower growth and e-commerce-led disruption in the food retail sector, supermarket chain Yonghui, (which includes pan-Asian retailer Dairy Farm, and media giant Tencent among its major shareholders) continues to do well, with healthy sales growth. Meanwhile, a willingness to act quickly to cut initiatives that aren’t working and to leverage the strength of partners (such as a new joint venture in Guangdong with Tencent and ParknShop), should help to both protect margins and sustain sales growth over the longer term.

* Source: All data from China Statistical Information Network,

Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
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