Since the last China Brief, consumption has witnessed a remarkable upswing. The unveiling of economic stimulus measures since September 24 has given it a significant boost. The highly anticipated Double 11 Shopping Festival, which concluded on November 11, exceeded all industry expectations, igniting excitement among industry executives.

Despite the Momentum, Uncertainty Lingers

Over the past year, the Chinese economy and consumption have been shrouded in uncertainty due to persistently low business and consumer confidence. Many economists are questioning whether the government's stimulus measures will be sufficient to stimulate growth by enhancing liquidity and revitalizing the slumping real estate market.

Stock Market Recovery and Property Transactions

The stock market has shown signs of recovery, with the CSI 300 Index rising by approximately 20 percent in the last two months. Moreover, property transactions in October and the first half of November witnessed a modest 2 percent increase, marking the first positive growth in this key indicator this year. An analysis of daily transaction data from 30 major cities supports this trend. (Exhibit 1)

Retail Sales Growth and Online Shopping Festival

Retail sales in October grew by 5 percent, in contrast to the 3 percent growth in the earlier months of the year. The early start of this year's online shopping festival, Double 11, played a part in this uplift, as evidenced by the strong growth in categories like cosmetics and home appliances. A more comprehensive picture will emerge when the October and November data becomes available next month.

Car Sales and Travel Growth

Overall car sales witnessed double-digit growth in October, driven by a more than 50 percent increase in electric vehicle sales. (Exhibit 2) Travel also remains a strong growth area this year. National holiday travel performed exceptionally well, with domestic travel visits increasing by 5.9 percent and travel spending rising by 6.3 percent compared to 2023. These metrics exceeded the same period in 2019 by 10.2 percent and 7.9 percent respectively. The recovery rate of overseas travel is improving each month and is expected to soon surpass pre-COVID-19 levels. (Exhibit 3)

Insights from Double 11 Shopping Festival

Double 11, the world's largest online shopping festival, still holds significant importance in China, although there have been some changes. The era of celebrating billions of dollars in a single day is over, but it remains a month-long promotional event with major platforms and offline retailers participating. This year, Double 11 was the longest ever, with pre-sales starting as early as October 8, extending the shopping spree to up to 31 days on some platforms.E-commerce data provider Syntun estimates that this year's growth is 26.6 percent. Although this figure is somewhat inflated due to the longer promotion season, it indicates more meaningful growth in gross merchandise value (GMV) compared to last year's modest 2.1 percent growth. While platforms no longer publish GMV numbers, Alibaba's platforms reported robust growth and a historical high in customer engagement. JD announced a 20 percent increase in shoppers. Livestreaming continued to expand, growing from 19 percent of total GMV in 2023 to 23 percent this year. On Alibaba's platforms, 589 brands exceeded RMB 100 million in GMV, an increase of 46.5 percent compared to last year, with 45 brands achieving more than RMB 1 billion in GMV.

Granular Strategies for Consumer Segments

During this year's Double 11 shopping festival, getting granular has been a key focus. Establishing direct one-to-one connections with consumers with the highest spending power has become crucial for brands. For instance, Alibaba's 88VIP members placed orders that increased by 50 percent year-on-year, accounting for over 90 percent of sales for some brands during their member-exclusive sales events. Currently, 42 million people hold 88VIP membership, and their average spending is nine times that of non-members.Brands need to engage consumers both offline and online across all platforms to effectively target the most important and diverse consumer segments. The one-size-fits-all approach no longer works.

Granular Strategies for Emerging Growth Categories

The same granular approach is essential for categories. New subcategories are evolving into multi-billion-dollar industries. For example, the sales of blind box collectible toys, which barely existed before 2019, may exceed $2 billion this year. This trend is driven by the desire of young Chinese consumers for enjoyable moments and the chance to express themselves. Brands can leverage this hobby-driven trend to introduce new products and expand into new categories. Often, these categories are developed with an online-first approach, and e-commerce and Double 11 play a unique role in supporting the "product drop" business model, where highly anticipated, limited-edition products are released in limited quantities to generate demand and excitement. For instance, a collection from PaperPresented alone generated RMB 200 million in GMV on the first day of sales on Tmall. This collection was based on the popular dating game Love and Deepspace. In addition to PaperPresented, three toy brands including miHoYo, Jellycat, and Pop Mart achieved the RMB 100 million GMV milestone on Alibaba. (Exhibit 4)Other high-growth categories include low-sugar and sugar-free teas, outdoor clothing and gear, consumer health products, and pet supplies.

Enhancing Consumer Experience

While price and promotions attract people to Double 11, opaque promotion mechanisms have dampened the excitement. Consumers often need to meet certain spending thresholds to avail discounts, making the shopping experience confusing and cumbersome. Brands have the opportunity to enhance the shopping experience by investing in areas beyond just price. This includes improving customer service and leveraging AI, such as AI-based skin consultations or custom-formulated products.

Cost Efficiency and Returns Management

Cost efficiency has gained significant importance. The rising cancellation and return rates make inventory planning challenging and have substantial cost implications. Brands can reduce returns and cancellations by enhancing product descriptions and improving promotion mechanisms. Platforms are providing merchants with more autonomy to handle disputes directly, reducing logistics costs and improving efficiencies through AI.Conclusion:Although there is clear momentum in China's consumption landscape, uncertainty remains. Companies must remain vigilant, plan for different scenarios, and be ready to adapt quickly to market changes. The pace of change in China is rapid, and businesses need to stay agile to navigate this dynamic environment successfully.