The Rise of Chinese Brands
The rise of homegrown Chinese brands seems to be one of the strongest trends in China. “Guochao” has become a buzzword ever since China’s sportswear brand Li Ning’s successful debut at New York fashion week in 2018. Its “Wudao(悟道)” collection is embedded with traditional Chinese culture, the four big Chinese characters 中國李寧, or China Li Ning in English, are believed to be a symbol of cultural confidence which has its roots in China’s rapid rise over the past few decades.
Young Chinese consumers have grown up in a period of strong economic growth and thus are very proud of their country. Their parent’s generation preferred foreign brands and products over local brands with a general perception that foreign products were of better quality. Today, this perception has changed, and many young consumers feel no difference whether it is local or foreign and prefer whichever brand is trendier. Additionally, the escalating tensions between China and the US have accelerated domestic substitution as strengthening patriotism pushes more Chinese people to shop local brands. Lastly, booming e-commerce platforms in China play an essential role in the process. A digital world makes domestic brands’ penetration easier and faster. Key opinion leaders rely on Alibaba’s Taobao platform, Tiktok, and Kuaishou to promote and sell goods through live streaming.
Domestic brands are adopting digital trends faster than their foreign competitors. We believe this “Guochao” trend is likely to last as long as domestic brands continue to adapt to consumer preferences and improve their products accordingly. The new generation prefers quality, aesthetics, embedding Chinese culture and high-tech elements, and telling their brand stories via the ever-changing channels.
Which Industry Would Benefit From This Trend?
We see the emerging local brands trend across different consumer industries and categories, including mobile phones, home appliances, sportswear, apparel, cosmetics, and packaged food. For instance in Sportswear, China Li Ning is a high-end brand that Li Ning launched in 2018. Anta and Li Ning products tend to sell 40-50% cheaper than those of Nike and Adidas. China Li Ning has launched some product lines at similar price points to those foreign brands, but still, they have been prevalent among many Chinese consumers. Another example is the smartphone market in China. In 2015, Apple and Samsung had 38% and 11% of market share, respectively; in 2019, their market share fell to 21% and 2%, respectively. Meanwhile, the top 4 Chinese smartphone brands had a combined market share of 35% in 2015 and 73% in 2019.
What is the Outlook for Foreign Brands in China?
China is becoming one of the world's largest consumer markets and is still an under penetrated market with untapped potential. This provides opportunities to both foreign and local brands. Foreign brands are no longer preferred not just because they are from overseas. The quality of local brands has improved, trust has been built, and more importantly, the mindset of local consumers has changed. Thus, foreign brands will also need to understand Chinese consumers better and be more innovative to attract the younger generation’s attention, after the low-hanging fruit has been picked. Foreign brands have to stay more relevant with local consumers' needs and adapt to fast-changing demand in the country.
 Baidu and the Research Institute of the People.cn, 2020
The views and information discussed in this brochure are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation.
Top 10 holdings % of the Mirae Asset Emerging Markets Great Consumer Fund, as of date 12/31/2020: Tencent Holdings Ltd. (4.98%), Pinduoduo, Inc. Sponsored ADR (3.68%), Shanghai International Airport Co., Ltd. (3.61%), Li Ning Company Limited (3.45%), Hindustan Unilever Limited (3.43%), HDFC Bank Limited (3.37%), Ping An Insurance (Group) Company of China, Ltd. (3.33%), NAVER Corp. (3.26%), JD.com, Inc. (3.23%), Samsung Electronics Co., Ltd. (2.95%). Fund holdings are subject to change and should not be considered a recommendation to buy or sell any security.
Past performance is no guarantee of future results.
Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.
Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.
Market Disruption and Geopolitical Risk — Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, natural and environmental disasters, systemic market dislocations, public health crises and related geopolitical events have led, and in the future may lead, to increased market volatility, which may disrupt U.S. and world economies and markets and may have significant adverse direct or indirect effects on the value of a Fund and its investments.