Grassroots insights unveil trends in China’s consumption, real estate, industry, and employment

In February, China's latest manufacturing PMI was 49.1, indicating the fifth consecutive month of contraction. On the other hand, the non-manufacturing PMI increased to 51.4 in February, up from 50.8 the previous month. These mixed signals imply continued caution among corporations and consumers.

But what's beneath the headline numbers? It can be challenging to understand the subtleties of the economy and how Chinese people are handling day-to-day life. In today's post, we'll share key insights from an intriguing research report by Huachuang Securities' research team. This report features insights from grassroots research conducted by over 100 researchers across 23 teams in more than 100 towns and cities during the recent Spring Festival in China. The study covers consumer behaviors, real estate pressures, industrial activities under export pressures, and income and employment.

You will uncover on-the-ground insights and sentiments from the daily lives of ordinary citizens. This includes their views on the real estate market, young Chinese individuals' perspectives on their future careers, spending habits, and areas where they are cutting back, among others. These grassroots perspectives offer a more nuanced and genuine understanding of China's state of affairs, beyond the typical economic headlines. We will also supplement these insights with our own data observations, comparing our findings with Huachuang's research.

Below is our translation of the key insights from the original research. Please note that we've only selected the essential insights; some paragraphs are abbreviated or redacted.

Brand penetration into lower-tier markets: offline chain and online retail

Brand penetration into lower-tier markets is a commonly used term in this research. It signifies an upgrade in consumption experience for fourth and fifth-tier cities and county towns. This is evident in two aspects: offline chain and online retail.

Offline chain: the first-tier chain brands of milk tea, coffee, and bulk snacks collections are "conquering" county towns.

In Hengyang City, Hunan Province, China, you can find many goods commonly seen in first and second-tier cities, such as Chayanyuese(a modern Chinese tea shop), HeyTea, Tastien Burger, Luckin Coffee, and Cotti Coffee. You can find everything you may expect in first and second-tier cities, and the younger generation's lifestyle increasingly mirrors that of these urban areas. Due to previously low consumption levels, there is a rising trend among residents; well-known chain brands like McDonald's, Starbucks, and Luckin Coffee are gradually making their way into the city.

In Gao’an City, Jiangxi Province, China, the Tastien Burger in Shanghai costs 7.9 yuan after applying a coupon. However, a four-piece set meal in the county-level city is priced at 29.9 yuan. Despite these prices being close to or exceeding those in first and second-tier cities, customer traffic remains desirable. The most noticeable change over the past few years is the emergence of Super Ming (a renowned bulk snack collection brand), which has nearly ten stores in the city and at least one store in economically stable towns. The primary customer base is focused on women with children (age range 25-40); most are store members shopping for their entire family, frequently spending over 100 yuan on average. There are also 2 to 3 Busy For You stores, and the overall capacity of bulk snack stores is about 20.

Baiguan: We monitored the takeout orders from eight major coffee and tea chains on Meituan. Our findings indicate that coffee and tea consumption is increasingly penetrating lower-tier cities. Brands that have gained popularity in first-tier cities in recent years, such as Luckin, Cotti Coffee, and Neytea, are now becoming popular in lower-tier cities too, as evidenced by the rising average Meituan order per store.

Online retail: live commerce is increasingly becoming a daily shopping method for the older generation, affecting the traditional business ecosystem in economically disadvantaged towns.

In Yiyang City, Hunan Province, China, online retail is becoming increasingly popular, necessitating community group buying in counties and towns. The older generation's attitude towards e-commerce has evolved from skepticism to understanding and participation, finding platforms like Taobao and JD.com highly convenient and Pinduoduo cost-effective. Community group buying (CGB) originated in Hunan as an innovative retail format and has achieved high local penetration and customer loyalty due to its convenience and cost-effectiveness. It is common for families in counties and towns to place orders 2 to 3 times a week, even making multiple transactions within a day, turning it into a hobby for many housewives in their spare time.

In Xishuangbanna, Yunnan Province, China, the product seeding of livestream hosts allows people to learn about and purchase products from across China without leaving their homes. Consequently, the information gap concerning products has significantly reduced, making it increasingly challenging to profit from it.

Baiguan: Sales data from major e-commerce platforms, as tracked by BigOne Lab, indicates that the year-on-year growth of Gross Merchandise Value (GMV) on Douyin and Kuaishou's live-streaming e-commerce maintained double-digit growth throughout 2023 and into January 2024.

Two-extreme pricing: favoring affordable necessities, paying for brand characteristics

Affordable necessities can drive sales volume, while unique brand characteristics can justify a premium price. However, non-essential, ordinary brands may struggle to stand out.

In Qiqihar City, Heilongjiang Province, China, the Mixue Ice Cream & Tea, and Tianlala, which average 6-8 yuan per cup of milk tea, are developing very stably; the nearly 20 yuan per capita Chagee is also expanding, while the milk tea shops like Zhang'Ayi Milk Tea, with an average of 10-15 yuan per cup are in a challenging situation.

In Jingzhou City, Hubei Province, China, consumption patterns depict a lively lifestyle. However, there is an increase in the closure of gyms and non-skilled training facilities. Mid-to-high-end shopping venues such as Wanda Plaza and Renxin Hui "人信汇" face low consumption, regardless of whether they offer food or clothing. The once-common queues at chain restaurants, like hot pot and barbecue joints, have diminished, and flash discounts from various clothing brands are rising. In contrast, low-end eateries such as snack streets, couple-run shops, and small food stalls are flourishing, often with queues. However, the price per customer at these small food stalls has notably increased by over 30% compared to the previous year (from 5-8 yuan to a starting price of 10 yuan). More non-essential businesses, including gyms and non-skilled training facilities, are facing closure.

In Sanya City, Hainan Province, China, hotels have a high occupancy rate and remarkably affordable budget hotels in great demand. The prices of star-rated hotels remain stable year-on-year, and hotels featuring local folk customs are also moderately popular. Budget hotels, like Home Inn and 7 Days Inn, are typically fully booked before festivals. The year-on-year price of high-end hotels is less reasonable than in previous years: During the hotel booking periods, the average cost of mid-to-high-end hotels in Haitang Bay, Sanya, is 4000-6000 yuan, about three times the off-season price. The average daily price of mid-to-high-end hotels in downtown is around 1000 yuan, approximately twice the month-on-month rate.

Rational self-pleasure: not about downgrading consumption but improving emotional health

In Wuwei City, Gansu Province, China, unnecessary significant expenses decreased in 2023. For instance, second-hand options when buying a car are considered first. However, emotional spending by young people on items like milk tea and manicures remains quite popular.

In Beijing City, China, there is a growing "self-pleasing consumption" trend among young people. A barber mentioned that he worked almost daily without rest in the past year. One reason is his appreciation for the chance to earn money post-pandemic. The second reason is the significant increase in demand for hairdressing services, especially during weekends and holidays.

In Fuzhou City, Fujian Province, China, consumers prioritize cost-effectiveness but are willing to spend money on necessary things. Communication with friends and family does not reveal significant unemployment or salary cuts but a general sense of crisis. However, the principle is to avoid unnecessary expenditure rather than downgrading consumption. On the contrary, purchasing decisions remain firm for essential occasions like the Spring Festival and Valentine's Day. For instance, despite soaring food prices, consumers prioritize quality over cost during the New Year. Even though many restaurants only offer more expensive Valentine's Day set meals without the option for single orders, consumption remains robust.

In Zhenjiang City, Jiangsu Province, China, fewer consumers buy 3 pieces of gold wedding jewelry as a betrothal gift (usually a ring, a necklace, and a pair of earrings). Instead, more are purchasing gold products with ancient Chinese gold casting craft and one-price gold products (including gold price and labor cost). They are willing to tolerate higher processing fees and pay for the design value of gold jewelry. Compared to last year, when consumers rushed to buy weight products for their value-preserving properties, consumers are now more willing to pay for gold products with unique designs. The consumer base largely consists of younger people, primarily women aged 30-60, often accompanied by the elderly when buying gold jewelry. Despite a drop in international gold prices during the Spring Festival, the store's gold price remained largely unchanged, maintaining a high level of consumer enthusiasm for gold purchases.

Real estate pressure: rigid demand still exists