Emerging Consumer Trend in China: Guochao

Q1. What is the emerging consumer trend in China?

The rise of homegrown Chinese brand seems to be one of the strongest trends in China. “Guochao” has become a buzzword ever since China’s sportswear brand Li Ning’s debut at New York fashion week in 2018 which turned out to be a huge success. Its “Wudao(悟道)” collection embedded with traditional Chinese culture with the four big Chinese characters 中國李寧 or China Li Ning in English right in the middle at the front are believed to be a symbol of cultural confidence which has its roots in China’s rapid rise in the past few decades.

Young Chinese consumers have grown up amid strong economic growth in China and thus they are very proud of their country, i.e. strong patriotism. Parent generation preferred foreign brands and products over local brands in the past with a general perception that foreign products have better quality. This perception has changed that today many young consumers feel no difference whether it is local or foreign, and prefer whichever brand with more trendy style. In addition, the escalating tensions between China and the US have also accelerated the pace of domestic substation as strengthening patriotism pushes more Chinese people to buy domestic brands. Lastly, booming e-commerce platforms in China play an important role in the process.  A digital world makes domestic brands’ penetration much easier and faster. Key Opinion Leaders rely on Alibaba’s Taobao platform, Tiktok, and Kuaishou to do live streaming for marketing and selling products.

—————-Domestic brands have been adopting digital trend faster than foreign competitors. We believe this “Guochao” trend is likely to last as long as domestic brands continue to adapt to consumer needs quickly and improve their products accordingly. The new generation prefers encompassing quality, aesthetics, embedding Chinese culture and high-tech elements, and telling their brand stories via the ever-changing channels.

Q2. Which industry would benefit from this trend?

We are seeing emerging local brand trend across different consumer industries and categories including mobile phones, home appliances, sportswear, apparel, cosmetics, and packaged food. For instance in Sportswear, China Li Ning is a high end brand that Li Ning launched in 2018.  Anta and Li-Ning products tend to be sold 40-50% cheaper than those of Nike and Adidas. Some product lines of China Li Ning were launched at similar price points to those foreign brands, but still, they have been prevalent among many Chinese. Another example is smart phone market in China. Apple and Samsung lost market shares from 38% and 11% in 2015 to 21% and 2% in 2019 respectively. Meanwhile, the top 4 Chinese smartphone brands had a combined value market share of 35% in 2015 to 73% in 2019.

Q3. What’s your outlook on foreign brands in China?

China is becoming one of the largest consumer markets in the world and more importantly it is the market with still a low penetration, i.e. untapped potential. This provides opportunities to both foreign and local brands. What we want to highlight is that foreign brands are no longer preferred just because they are from overseas. Quality of local brands has improved, trust has been built and more importantly mindset of local consumers has changed. Thus, foreign brands will also need to understand Chinese consumers better and be more innovative to attract the younger generation’s attention after the low-hanging fruit has been picked. They have to stay more relevant with local consumers need and adapt to fast changing demand in the country.

Related ETF

Global X China Consumer Brand ETF (3191 HKD / 9191 USD) is designed to enables investors to access high growth potential through companies that are positioned to benefit from consumption premiumization in China.

Other Key Features:  

• Unconstrained Approach: The fund’s composition transcends the classic sector and industry classifications by tracking an emerging theme.
• ETF Efficiency: In a single trade, the fund delivers access to dozens of companies with high exposure to the consumption premiumization theme in China.

Please click here for more information on the Global X China Consumer Brand ETF.