Yining is the Founder and Investment Director of Nordic Asia Advisory Group, a Stockholm and Shanghai-based investment management firm that aims to decode Asian Investment Opportunities to Nordic Investors. Like the company itself, Yining comes from multi-cultural heritages that enable him to have in-depth knowledge and understanding for both Nordic and Asian markets. During this interaction with Aventura, Yining shared his insights on China investment and the China consumer market.
Tell us a bit more about yourself and your experience with China and Nordic markets.
I have a Swedish-Chinese second-generation background, previously working in Stockholm for the Schörling Group at its investment company prior to moving to Hong Kong since 2014 to work operationally in ASSA ABLOY APAC for the past five years prior to founding Nordic Asia. The market conditions in China and Nordic are vastly different for example. In China, the market is highly competitive, customers are demanding, the pace of execution is fast and the market is very large. In the Nordic markets, the market is more concentrated, but quality, precision and more tailored product-market fit becomes more important growth drivers than speed, scale and price. However, at its core companies, markets, people and business are the same, therefore absent of the difference in market conditions, I think developing businesses is quite the same when you understand the market and can connect with the people whether in Nordic or in China.
Your firm focuses on investments in companies exposed to the Chinese consumer market, tell us about the reasons behind this focus.
Economist predicts nominal GDP in China will continue to grow at trend level by 7 – 8% per year until 2030. During this period, as consumption is expected to grow from 39% of GDP to 50% of GDP, this implies a market growth of more than 3 times from 5.4 trillion to 16.4 trillion in 2030.
China is gradually shifting towards a domestic consumption-leading economy via rapid expansion of middle-class consumers. The anticipated rise in income levels means that Chinese consumption habits will also change. Individuals moving into the lower mid-income bracket will have more significant room for discretionary spending apart from the necessities. And those entering the upper mid-income segment will be looking to upgrade their spending towards branded and premium products.
Therefore, we think it’s crucial to participate and invest in companies with strong exposure towards the underlying growth of the mass middle class in China. Imagine the growth of the middle in China similar to the same period of rapid middle class growth in USA historically but with a population 4x that of USA. Meanwhile, the high-income population growth means that international travel, financial services, and luxury products will become increasingly widespread.
Despite unprecedented growth in China over the past decades, the true market potential is still ahead of us. For example, there is still only 1 car for every 5 people in China compared to 1 car for every 1.3 people in the US and Chinese savings rate per household is at 35% of disposable income compared to international averages of approx. 10-15% therefore the potential for consumption growth is still untapped when compared internationally.
The Chinese consumer market has grown rapidly in the past decade, what are the drivers behind this growth?
From my perspective, demographic change, expansion in urbanization, and domestic policy are the three main drivers behind the shift towards a consumption-dominant society.
First, demographic change will lead to a consumption boom. Today, the 400 million Chinese millennials are becoming the primary workforce of China. Compared to the generations before, they grew up in an environment with more social stability and significantly improved living standards. Better educated and influenced by imported products and culture from the west, this generation presents great willingness in discretionary spending on apparel, social, and entertainment. On average, millennials spend 3x more on discretionary items as compared to the rest of the country’s population.
Furthermore, China’s baby boomers are retiring rapidly. The population of retirees 65+ is expected to increase from 13% to 20% of the population in the next decade, adding more than +100 million retirees in the coming 10 years. This will drive a structural demand for retirement leisure, health, nutrition, pharmaceutical, aged care services to serve the baby boomers.
Second, urbanization will lead to consumption upgrade. There exists a strong correlation between the level of urbanization and essential growth drivers in China. Although a first structural high growth period with urbanization as a critical driver has passed, as Nordic Investors, we still can capture the next phase of urbanization-driven economic market growth in China. The current urbanization rate of 60% in China is expected to increase to 70% by 2030. This can be compared to current urbanization rates of 82% in the USA and 87% in Sweden, giving plenty of headroom for urbanization to continue to act as an essential growth driver in China even after 2030.
Finally, China is proactively pursuing several structural reforms to raise an urban middle class to drive consumption growth. For example, the increase of coverage of social security pension programs (covering 85% of workers), continued high wage growth (7-10%), low inflation (2-3%), control of housing prices, and encouragement of balanced regionalization development strategies to alleviate large city congestions and drive economic growth in lower-tier cities, leading to an expansion of mid-income class and increase in disposable income.
What are some of the common misconceptions/misunderstanding investors have for the China consumer market and how would you approach investing in Chinese equity market?
First of all, in general the Nordic investment portfolios is highly under-allocated towards China consumption. I think the key reason is lack of transparency, language-cultural barriers, market-distance and lack of local market presence in Asia/China. Many of these companies we invest in are not active in the Nordic market, therefore it is more difficult to understand and relate to them and follow their business development over a period of time.
Nordic Asia has an experienced and local team in Shanghai and we’ve followed these companies during a long period of time meanwhile we actually apply the same Nordic investment philosophy and investment criteria to invest in the Chinese investment universe. This has worked well for us and our combination of Nordic investment philosophy and local market presence has given us an edge in our industry.
Aventura is a China focused venture builder and market partner. Aventura offers holistic solutions to launch, manage and grow businesses in China, drawing upon competences across marketing, sales, e-commerce, and logistics. Founded in 2011, the Group’s client base comprises a wide range of multinationals, international consumer brands, startups and investors. Aventura is headquartered in Shanghai, with additional representation in Hong Kong and Stockholm.