Sat, July 13

Welcome to the Age of Enjoyment.

As 2023 is coming to an end, looking back to this time last year feels like a long time ago, and I wonder how everyone has been doing this year. People in different industries, with different jobs, and different incomes may have had different experiences and mindsets throughout the year. This year has been marked by significant divergence in consumer spending across various sectors. Based on the economic data released by the National Bureau of Statistics in October 2023, let’s discuss the changes in people’s spending habits.

With a wide range of industries, how can we categorize them? I read a report from Tianfeng Securities yesterday, which classified consumption into five categories: automobile consumption, real estate-related consumption, travel consumption, other optional consumption, and essential consumption. The changes in these five categories of consumption are quite intriguing. For example, in automobile consumption, sales of high-end luxury cars have continued to grow. By October, the sales of passenger cars priced above 300,000 RMB increased by 30% year-on-year, far exceeding the overall growth rate of passenger cars at 3.2%. However, the sales of ordinary cars have not been as promising, with the market share of cars priced between 50,000 and 100,000 RMB dropping from 24.4% last year to 18.7%.

I am usually very passionate about following news related to cars. Recently, the sales data released by major car companies have really opened my eyes. The MEGA model from Ideal Auto claims to have a selling price below 600,000 RMB, and the pre-order quantity exceeded 10,000 units in less than two hours; the X007 model from Jike had over 15,000 pre-orders within 12 hours; the Avita model surpassed 10,000 pre-orders in just twelve to thirteen days; and the Wanjie M7, Ideal L7, and Xiaopeng G6G9 models are gradually picking up momentum. Various brands are introducing various supporting technology packages, laser radar, and other optional configurations, with almost all new cars targeting the market above 250,000 RMB. The prices of new energy vehicles easily reach hundreds of thousands, with the sales proportion reaching 14.1% in the third quarter of this year, meaning one out of every seven car buyers purchases a high-end car; whereas two years ago, only one out of every ten car buyers purchased a high-end car.

Are all Chinese people so affluent when it comes to buying cars? I believe there are two explanations for this phenomenon. Firstly, the revolution in intelligent automotive technology and intense price wars have ignited the desire to purchase high-end cars. Secondly, the least affected group in the past three years has been the wealthy, as their spending on housing has decreased, leading to a shift in their consumption capacity towards the automotive market. Looking at outbound consumption, from January to October, residents’ travel expenses, including dining, have seen a compound annual growth rate of 6.2% over the past two years, significantly higher than the 3.7% compound annual growth rate. Prices for hotels, homestays, cinemas, restaurants, and air tickets are all on the rise, keeping business owners extremely busy. While last year was full of complaints, this year is quietly profitable, with prices rising and staying high. However, behind the crowds of people lies two hidden risks. Firstly, there is a mismatch between tourism income and the number of tourists. The eight-day National Day and Mid-Autumn Festival holiday was longer than in previous years, but tourism income has only recovered to 101.5% of 2019 levels, with per capita consumption at 97.5%. According to the Tourism Bureau, holiday tourism income was 753.43 billion yuan, calculated based on 826 million outbound trips, with an average expenditure of 912.1 yuan per person. If averaged over the eight-day holiday, the daily expenditure per person is only 114 yuan. Secondly, due to the revenge travel caused by pent-up demand, a return to normalcy is inevitable. There are already signs of a decline in air ticket prices during the double holiday period. Starting from October, the growth rate of outbound consumption has begun to decline.

The report by Tian Feng points out that after multiple rounds of holiday releases such as the beginning of the year, May Day, Dragon Boat Festival, summer vacation, Mid-Autumn Festival, and National Day, the pent-up consumer willingness for travel has reached a relatively high level, making it difficult to surpass the current level. In terms of consumption related to housing, it has shown a relatively weak performance compared to the past three years. As of September 2023, the sales area of commercial housing was 92.57 million square meters, with sales amounting to 971.6 billion, representing a year-on-year decrease of 7.8% and 4.9% respectively. According to a report by Huatai Securities, the combined retail growth rate of furniture, home appliances, and decoration for the month was -2.8%, with a decrease in the number of people buying houses, furniture, air conditioners, refrigerators, televisions, and engaging in decoration. I believe that stakeholders in these industries have the most say.

In other optional consumer goods, the growth rates of beverages, tobacco and alcohol, and gold and silver jewelry are stronger than before the epidemic, but the growth rates of mobile phones, clothing, daily necessities, etc., are significantly lower than before. The rising gold prices may lead people who are not buying real estate to choose to spend at jewelry stores. The tobacco and alcohol industry is thriving, with people frequently holding gatherings, and middle-aged individuals addicted to socializing are also going out to seek entertainment.

The sluggishness in the mobile phone market is a reflection of insufficient innovation in smartphones and reaching the peak in sales volume. Particularly, the rapid price reduction of Apple 15 this year, but after the launch of Xiaomi 14, there are still quite a number of people switching phones, which to some extent supported the performance of consumer electronics products. On the other hand, the beverage market is showing some interesting phenomena. People who truly love beverages are very passionate. For example, recently, Kangshifu’s price has increased from three yuan to three yuan and fifty cents, and the price of bottled water is also gradually rising. The reason for the price increase may not be because people cannot afford Nongfu Spring, but because Kangshifu offers better value for money. Another phenomenon is the increasing speed of opening coffee and tea beverage shops, with single-item prices getting lower. As of August 31st, the total number of newly opened tea beverage shops is about 515,000, an increase of over 36% from the end of 2020, which was 378,000. The global number of stores for HEYTEA has reached 34,000, the number of stores for CHABADAO exceeds 7,000, the number of stores for GUMIN exceeds 8,343, and the number of stores for SHANGHAI AUNTIE reaches 6,740. Additionally, there are various snack shops with a wide variety of products. According to Prism’s statistical data, there are many snack brands with over 1,000 stores nationwide, and the number of temporary stores opened nationwide this year is at least 5,000. An interesting fact is that the total number of county-level cities in the country is less than 2,000.

In Japan, over a period of 30 years from 1992 to 2022, traditional consumption sectors such as home decor and education have seen an average decline of 29.3%. However, in areas like the beauty industry, including beauty services and cosmetics, there has been a significant increase of 45.9%. Beverages containing caffeine, such as tea drinks, coffee, and carbonated drinks, have even seen a growth of 127%. When it comes to finding happiness in a confusing life, our neighbors have long explored paths for us.

An interesting example is a report by Haitong Macro on low-desire society consumption, which pointed out that Japanese people originally enjoyed drinking beer. However, Japan imposes high taxes on alcohol, with rates depending on the type and alcohol content. Suntory developed a sparkling wine with a taste similar to beer but with lower tax rates and costs. Over the period from 1991 to 2001, consumption of sparkling wine saw an annual average growth rate of 87.6%, while beer declined by 3.7%.

Beverages containing caffeine and sparkling wine, much like the coffee we are currently engaged in a price war with barley this year, and the popularity of tea drinks and snacks, are not popular by chance.

The current situation can be summarized as follows: there is a decrease in the number of people buying houses, furniture, and appliances. Similarly, there is a decrease in the number of people purchasing clothes, smartphones, and laptops. Wealthy individuals opt for buying luxury cars and gold, while those with less money choose budget travel. Additionally, some people find joy in purchasing lottery tickets, beverages, and bubble tea, making their lives more enjoyable. Is this considered consumerism? No, it is more accurately described as hedonism. Some may argue that these two terms are synonymous, but upon closer examination, they do have distinct differences.

Consumerism is characterized by individuals defining their social status by overspending and purchasing power. In the past, owning a Honda Fit, Volkswagen Polo, or Ford Focus was considered decent as the number of cars in circulation was limited. However, now, owning a Mercedes-Benz C-Class, BMW 5 Series, or a Tesla Model Y, what’s the difference in the ideal boundary? Buyers are no longer concerned about being looked down upon by others; instead, they are focused on whether spending 300,000 can bring them the enjoyment that a 500,000 or even an 800,000 car cannot provide.

Hao Yun has a song titled “Living”, in which there is a lyric that goes: “They hold Apple iPhones, they wear Nike and Adidas clothing and electronic products”, which used to represent the two major symbols of consumerism. Low-income individuals use Apple, Nike, and Adidas, while high-income individuals use LV and Hermes to showcase their identity. Poor students do not have the money to purchase these items, but they pursue consumerism by overspending. However, there is a hidden danger in this pursuit.

Against the backdrop of loose monetary policy, low interest rates, and high economic growth, people’s pursuit of various assets or consumer goods is increasing. Shoes labeled as scarce are not only being resold at a premium, but even cars, houses, and various other items have become speculative objects. People can even buy real estate through credit card loans and then sell it at a premium in the future. Hoarding shoes, bags, and other items has even become an industry.

However, hedonism is different from consumerism, as it focuses more on obtaining small pleasures within one’s own means at a lower cost. For example, buying a new energy vehicle for tens of thousands of yuan without considering the resale value of a used car, but valuing the upgrade experience. People who cannot afford an Apple phone may choose a Redmi phone, and the difference between a 100 yuan Anta shoe and a 600 yuan Nike shoe is not significant. Spending 20,000 yuan on a handbag is not as good as attending a music festival, traveling, or enjoying good food.

During this year’s National Day holiday, there were about 60 outdoor music festivals held nationwide, nearly four times the number in 2019. According to data from the China Performing Arts Industry Association, the number of commercial performances nationwide during the holiday period increased by 49% compared to 2019. As the environment changes and assets and goods no longer appreciate in value, the household sector naturally reduces leverage. Financial data from October showed that household loans decreased by 34.6 billion yuan, a year-on-year decrease of 16.6 billion yuan. Short-term loans, which best reflect residents’ willingness to increase leverage for consumption, decreased by 105.3 billion yuan, a year-on-year decrease of 54.1 billion yuan.

This reflects the biggest difference between hedonism and consumerism, and is an important characteristic similar to Japan’s 3D era of low interest rates, low inflation, and low growth. Consumerism symbolizes buying class, buying identity, and buying appreciation and value retention, while hedonism is about buying things that bring happiness and pursuing present joy.