China's growth may be slowing, but its economy is still forecast to expand by $US1.1 trillion a year for half a decade. NZ companies want in.
Yangwen stands in the morning sunshine outside a traditional Auckland villa. She’s a mum of one from the central city of Lanzhou, where she and her husband run a hot-pot restaurant.
Yangwen and her 12-year-old son have been travelling together round the South Island for a week and now they have checked into a Ponsonby Airbnb so Yang Yang can spend a month studying at the local school.
It’s their second trip to New Zealand in three years.
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Yangwen doesn’t know it, but she’s a key marketing target for New Zealand businesses looking at expanding their presence in China or luring visitors Aotearoa-wards. Lanzhou is thousands of kilometres and hours of driving away from the country’s eastern cities (Beijing, Shanghai, Guangzhou etc), which are the more accessible and more traditional targets for NZ goods and marketing in China.
But Lanzhou is a provincial capital, a rich industrial city on the edge of the mountainous northwest, and home to 3.3 million people.
Many of those, like restaurant owner Yangwen, have money to spend.
Several NZ trade delegations are heading for China in September, following on from the big group that went there with Prime Minister Chris Hipkins last month. One will go to the western part of the country.
“The vast west is largely undeveloped as far as New Zealand business is concerned,” Chinese Ambassador Wang Xiaolong told 350 or so attendees at the annual China Business Summit in Auckland this week. “This is a new growth area.”
Urbanisation is part of the Chinese government’s continuing push to increase the country’s per-capita gross domestic product, says Raymond Yeung, chief economist for Greater China at banking group ANZ. Part of that strategy is to develop 19 “super-regions”, particularly in the mid-west – city clusters with the infrastructure to allow people to live within an hour of the centre.
In 2022, China’s National Development and Reform Commission called on all cities with under three million people to get rid of the rigid ‘hukou’ rural/urban household registration system. It's a reform which, if implemented, would allow far more people to move from the countryside into regional centres, and would lift GDP.
China has approximately 150 cities with more than a million inhabitants.
Even with the country's annual growth slowing, the IMF still forecasts the economy will expand by $US1.1 trillion every year for the next five years, fuelled to a large extent by the sheer size of its domestic market.
China's average annual growth (USD)
Part of kiwifruit company Zespri’s growth strategy in China involves expanding the number of cities where kiwifruit are available from 60 to 90.
“The west side has been largely untouched,” chief executive Dan Mathieson says. “There’s incredible wealth there and a desire for healthy foods.”
There are approximately 400 million middle income people in China, Ambassador Wang says. To put that in context, the total population of the US is ‘just’ 330 million.
And China’s goal is to double that middle class to 800 million people by 2035, Wang says.
Parallel to that are aims to increase NZ-China bilateral trade from $40 billion now to $50 billion by 2030.
Zespri research suggests part of the desire for healthy food among middle income Chinese consumers is around food safety and that gives food from a ‘clean green’ environment an advantage, Mathieson says.
“We need to demonstrate that, not just talk about it.”
Live-streaming and more
Then there’s the technology side. Yangwen, like most of her friends, buys the majority of her family’s food, clothes and household goods through her phone from Chinese e-commerce sites. Her site of preference is JD.com, but she uses a few.
And it’s not click and deliver as we know it in New Zealand. Companies wanting to sell stuff in China need to know how to use massive social media platforms like WeChat, Xiaohongshu (Little Red Book) or Weibo to reach consumers; most social media companies are big into e-commerce too.
Speaker after speaker at the China Business Summit talk about how selling our food products in China is no longer just about getting products into stores, it’s about finding a way of getting eyeballs on phones and then products onto doorsteps.
Zespri chair Bruce Cameron knows all about e-commerce. He spent time as a live-streaming star during the recent NZ diplomatic/trade mission to China – selling kiwifruit online in real-time.
The New York Times recently described the Chinese live-shopping “craze” as a way “star sellers can amass huge followings and eye-popping fortunes, through a format that mixes consumerism and entertainment”.
Working alongside influencer Cheng Boho (on the left in the photo below) Cameron sold RMB21,500-worth ($4,800) of kiwifruit on Douyin, China's version of TikTok. Live metrics (photo right, below) during the session show how many people are watching, total value of sales, and the conversion rate.
Live streaming already accounts for 70 percent of Zespri’s total sales on Douyin, Zespri's Dan Mathieson says. "Chinese consumers prefer more visual methods combining entertainment and shopping."
Consultancy company McKinsey estimates livestreaming accounts for 10 percent of Chinese e-commerce revenue. The number of livestreaming users has more than doubled in the past five years to more than 750 million this year, while the merchandise value from livestreaming is expected to surpass $670 billion (US $420bn), up from $273 billion (US $171bn) in 2020.
Meanwhile, for Zespri, tech-facilitated sales go wider than just live-streaming. Mathieson says around 40 percent of the Zespri's Chinese sales are via e-commerce apps, with fruit being delivered direct to consumers' homes. He expects that to go to 50 percent over the next five years.
“It’s about combining high-quality, healthy food with technology,” Dan Mathieson says. “Other markets don’t yet need the same level of technology, so we are looking to take learnings from China and apply them further afield.”
Yangwen tells Newsroom she thinks there are New Zealand products available in Lanzhou – meat, dairy or fruit, perhaps – but she isn’t sure. She’s suspicious because sometimes local Chinese companies try to pass their food off as being from countries with greener reputations, she says.
But maybe she is buying Kiwi kiwifruit over there. JD Fresh, the fresh food division of JD.com, is aiming to sell over two million standard trays (3.3 kg/tray) in China in the 2023 season, which started in April.
China speed
No one is even pretending selling to Chinese customers is easy, and the experts say one of the hardest things is how fast everything moves – new products hitting the market, new fads and influencers replacing the old, customers constantly switching preferences.
Back from his recent diplomatic and trade visit to China, Chris Hipkins talks at the business summit about “China speed” – a phrase used by others over the rest of the day
“China moves faster than most other economies,” Hipkins says. “There are lessons we can learn from that.”
Jamie Zhu is general manager of Ziwi Petfood Greater China, based in Shanghai. The Mt Maunganui-founded upmarket dried petfood company was bought by a Chinese private equity firm in 2021 and is selling into a lucrative market in China. Young, well-educated, first-time cat and dog owners living in big cities are prepared to fork out for the best food for their pet.
The way to pet owners' hearts – and their wallets – is through education, Zhu says. And customers get that through pet stores, but also through social media.
“The 18-24-year-old demographic is a key one. They have a strong emotional bond with their cat or dog, but more than half have little pet-raising knowledge; they are seeking information through social media, with nutrition and the recipe the top two factors they are interested in.
“They are prepared to pay for good quality products that might protect their cat’s hip and joints, for example, or boost their immune status.”
Competition is fierce, Zhu says, and local manufacturers have the advantages of shorter distances, easier supply chains, and the chance to move at China speed.
“With most Chinese food and beverage companies, innovation isn’t about one perfect product, it’s about fitting in with the change in consumer needs.
“The speed of new products to market is faster than for companies in other markets,” Zhu says, meaning Ziwi has looked for other points of difference: high-quality New Zealand natural ingredients, for example.
Meanwhile, at dairy giant Fonterra, part of its China strategy is trying to get New Zealand products into as many new food and beverage brands as possible.
The latest of five Fonterra ‘application centres’ in China opened in April in the southern city of Shenzhen. The centres provide a space complete with technical experts and chefs for people, whether Fonterra staff and/or customers, to develop recipes and products containing NZ dairy.
“It’s a way to test and try,” says Justin Lai, vice president of Foodservice at Fonterra. “We often co-create with customers from bakeries, or retailers or chefs; we can turn insights into a final prototype quickly.”
The Shenzhen centre will put a particular emphasis on new drinks, says Fonterra Greater China CEO Teh-han Chow.
"China is a highly competitive beverage market, with consumers constantly seeking the next best drink. Last year, 1,434 new kinds of non-alcoholic beverages were launched in China by key tea and beverage brands."
Fonterra's "dirty coffee" drink, which added cream cheese and butter into coffee, sold six million cups in first week.
"Businesses must adapt quickly to market trends and continuously create novel products that typically combine traditional tea ingredients, dairy and fruit products.
There’s money in the hands – or at least in the bank accounts – of Chinese consumers, ANZ’s Raymond Yeung says.
Household deposits cover 30+ months of total retail sales
Despite market concerns about high corporate debt, Chinese households are cash rich, holding total net deposits of more than $US6.5 trillion (NZ$10.4tn)
As the graph shows, household deposits could cover more than 30 months of spending, if needed – or wanted.
“Once consumer confidence improves, it will unleash their massive spending power,” Yeung says.
Deflationary pressures
There are some headwinds. Chinese second quarter gross domestic product figures, released this week, showed slowing economic growth.
GDP grew 0.8 percent quarter-on-quarter, as against 2.2 percent growth in Q1. Year-on-year, GDP was up 6.3 percent in the second quarter, up from 4.5 percent in the first three months of the year, although well below the 7.3 percent forecast growth.
Reuters called it “faltering growth due to weakening demand”.
Worse, youth unemployment in China hit a record high: 21.3 percent of 16-24 year olds living in cities are out of work, and another 11.58 million university graduates are expected to enter the Chinese job market later this year. That demographic – young, educated, urban, tech-savvy, and with some disposable income – are potential visitors or consumers of Kiwi products.
“This is the most relevant economic indicator for the Chinese economy,” Yeung says.
“Youth employment dictates consumption. Old people tend not to spend money, young people do.”
