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China's FMCG Market: A Bright Point in a Backdrop of Economic Uncertainty

  •   11 Dec 2019
  •    Chris Wang
  •  189
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    In the first three quarters of 2019, total FMCG consumption in China increased by 2.7% (Q1), 6.9% (Q2), and 5.7% (Q3), the same growth rate as the same periods in 2018.

    Consumption upgrading is the central theme of China's consumer market, and consumption of imports is becoming an essential manifestation of China’s consumption upgrade.

    In the first half of 2019, imports accounted for 18% of China's total FMCG consumption, with a growth rate of 10%, close to double the rate of growth seen in the rest of the FMCG sector.  

    What to sell?

    Figure 1: Chinese consumers show an enduring desire for imports, especially in product categories where they can satisfy their aspirations for a more diversified, healthy and quality lifestyle.

    Summary of most demanded FMCGs and key drivers of consumer purchasing preference in 2019

    CategoryFocusMost wanted sector
    Price: 68%
    Ingredients: 65.4%
    Aquatic product;
    Mom&BabySafety: 89.5%
    Materials: 57.7%
    Infant formula;
    Complementary food;
    CosmeticsSafety: 71.3%
    Quality: 64.6%
    ClothingPrice: 70%
    Style: 68.3%
    Fabric: 55.9%
    Cosy: 54.7%

    Source: China Ministry of Commerce

    According to the China Shopper Report 2019 by Bain & Kantar Worldpanel, among the top 20 categories with the highest import value (MAT Q2 2019), the six categories with an import value share of greater than 50% (value of imports expressed as percentage of value of whole market for each specific segment) are Spirits (74%), Wine (60%), Milk powder (57%), Fragrance (56%), Makeup (51%), and Chocolate (50%).

    The six categories with the highest compound annual growth rates (Q2 2017 to Q2 2019) are Carbonated Beverages (29%), Makeup (28%), Pet Food (26%), Skin Care (18%), Personal Wash (17%), and Nutrient Supplement (16%).

    Who to sell?

    1. Consumers from lower-tier cities
    According to Tmall Global, 45% of users of cross border e-commerce are from third tier (or lower) cities and counties. Increased income and full e-commerce penetration in these regions is precipitating increased demand for high quality products. Additionally, China’s cross border e-commerce accounts for only 2.2% of the overall online shopping market, said by Gao Hongbing, the dean of Ali Research.

    2. Silver Hair = Golden Ticket: China’s Senescent Population
    Over 17.9% of the Chinese population was over 60 in 2018, which will reach to 25% in 2025. In 2018, Over 65% of elderly people contributing to cross border e-commerce consumption are from 1-2 tier cities.

    Health/disease management is the main focus of the elderly. Health care products account for more than 30% of the cross-border e-commerce consumption of the elderly.

    Encouragement from the Chinese Government

    In 2018, consumption contributed 76.2% to China's GDP, and has become the driving force behind China's economic growth.

    China is making considerable efforts to stimulate inward trade through tariff reductions and policy reforms:

    • Tariffs reduction: As of 2018, China's average tariff level had dropped from 15.3% to 7.5% (assessed from when it first joined the WTO.)
    • Free trade agreements: China has signed 18 FTA, and negotiations on 13 other free trade agreements are underway. In the free trade agreements that have already entered into force, 24 countries and regions are involved, and more than 8,000 kinds of goods have been imported with zero tariffs.
    • Custom efficiency: in 2018, China implemented far reaching institutional reforms. One of the new responsibilities of China’s General Administration of Customs was to implement new policies designed to stimulate imports. China's overall import clearance time was reduced by 56.36% in 2018.
    • Open cross border e-commerce policies: In 2018, China added 22 pilot cities for cross-border e-commerce, and so far, there is a total of 37 pilot cities. In the same year, China also expanded the cross-border e-commerce retail import goods list to 63 tax items of 1,321 commodities.
    • China International Import Expo (CIIE): the 2019 event attracted over 3,000 exhibitors from more than 150 countries/regions. Contracts totaled to some 71.13 billion US dollar, increasing 23% in total value compared to 2018.

    Reference Link

    1. China Ministry of Commerce's Report on Supply and Demand of Major Consumer Products
    2. China Shopper Report 2019
    3. China Import Consumer Market Research Report (CN)

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    Senior research analyst at ChemLinked, focuses on market and regulatory intelligence in China, especially for imported goods: dairy products, health foods, pet foods, cosmetics, etc.

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