China Market Report Oct 2016
China’s Growing Middle Class
Alexander Kovachevich, GM China Area
The first 7 days of October are known in China as the Golden Week. Except for the Spring Festival, it is now China’s longest holiday. The government uses these holidays to encourage people to get out of the house and spend, and guess what? It is working! Apart from using the days off to travel both inside and outside of China, people are also using the down time to eat out and shop, mostly online. One survey* has estimated almost 590 million people will be traveling in China over this time with an estimated 70 billion USD being spent. While some of those trips will be trips home for out-of-state workers, that’s still a lot of money spent on transportation, shopping, and perhaps the most important part of any holiday: eating lots of food in restaurants or at home during the holidays. Tourist numbers are predicted to increase by 12% from last year, and tourist spending is estimated to increase by 13.5% over the previous National day. This seems to show that while more people are traveling, the rate of spending remains the same, with the slight increase being explained by CPI**. The way that this observer sees it, this trend shows that the middle class is getting bigger and this is an important trend for pork producers. For Chinas’ lower and middle class, a fancy dinner is not a real meal without a lot of meat, especially pork on the table. It is the middle class that can afford to do this more often. It is also interesting to note that around six million people will be heading overseas for their Golden Week, with Japan, Thailand and South Korea receiving most of these visits. Again, that’s a big injection of demand for luxury items and food in those countries.
The live weight pork price has fallen slightly to 17rmb a KG. Let’s remember that this is more than two times*** what American producers are getting for their animals. With the import quotas for pork in China increasing, we can expect that pork will continue to flow in. China has the people and demand!
China has become the centre of the global pig market, with all pork industry eyes looking to see what will happen in terms of production and consumption. The latest figures suggest a new record level of pork imports to China, with 2 million tonnes estimated to be imported in 2016.
And just a small reminder of a small online shopping event just around the corner to celebrate a new Chinese festival called “Singles Day” (Nov 11), an online purchasing festival****, with e-shops providing massive discounts just for the sake of selling and other promotions. Coupled with old-fashioned dating, there was a turnover of USD14.3 billion last year in China on this day. I wonder how much it will increase this year. Now with pork showing up more frequently in online shops, how much branded pork will be bought online from now on?
Of course, it’s not all positive with the Chinese economy. For example, housing prices have continued to rise from crazy high to outrageous levels. The risks to the economy this brings are real and difficult to predict. However, one thing we could take from the massive amounts of people traveling this Golden Week is that if houses become too expensive, then people will change their spending habits. Instead of saving for a house, they will travel more and eat better.
With domestic pork production still in the ramping up phase, it seems impossible to me that pork prices in China will fall for the immediate future. However, what is not so clear is how global prices will change as China’s growing middle class continues to expand.
This post was written by Genesus