The China collapse story has been touted almost every year for the past 20 years. Chinese retail sales data still looks robust and we believe the Chinese consumer is in good health. While growth is slowing down this year, it is from 2017’s high base, which was partly spurred by growth in China’s tier-2 and tier-3 cities. Property prices in these cities have increased for the past two years and the wealth effect is undeniable. 
Overall, I believe Singles Day retailing could see 20 per cent to 25 per cent growth year on year. Not only have Chinese consumers started to benefit from an income tax cut last month (which could boost consumption), but wholesalers may try to shift inventory by offering attractive prices before China’s new e-commerce laws come into effect next year.
The Chinese e-commerce landscape has changed dramatically over the last five years
A decade ago, Chinese consumers were underserved outside the big cities of Shenzhen, Beijing and Shanghai. The businesses in the consumer sector weren’t provided capital via the banks, and even consumer finance and mortgage lending were underpenetrated. What have we seen in the past few years is a result of servicing this untapped demand.
The internet transformed the market not only for consumers but also for suppliers
I am amazed by how competitive and efficient the logistics side has become over the last five years. Previously it would have been incredibly capital-intensive to set up a national brand including building out a retail presence and distribution. With the emergence of e-commerce, China has leapfrogged developed economies and the Chinese market is now reachable for everyone. Chinese internet companies allow you to distribute your product nationwide at a relatively low cost, and they can also take care of logistics, payment systems, business tax collection and other administrative tasks.
A more efficient consumer environment in China
The ease with which you can do things in China is remarkable. Take a look at mobile payments: why bother with a credit card if the phone has everything you need? There is a lot of support that allows these trends to emerge by providing the infrastructure around it. After all, China has always been good at providing the backbone. In the old days, it used to be ports, roads and rail to help the export industries. Now it’s providing the telecommunication backbone. There are over 1 billion 4G subscribers and China is aiming to launch the 5G network as quickly as possible. On a monthly basis, Chinese average data usage outstrips that of the US — they use well over five gigabytes of data per month per person.
Chinese growth has slowed due to tighter monetary conditions
The country has just gone through a major deleveraging campaign, closing down the channels for exuberant wealth management products and peer-to-peer lending. But the finance that flowed into these so-called ‘financial engineering products’ can now be directed into the real economy without the economic risks of financial leverage.
The government has turned its focus on improving people’s lives
We have seen not only substantial healthcare and social security reforms this year, such as the massive urban redevelopment projects, but also policies that encourage the development of a consumer environment. The government wants to promote small- and medium-sized businesses that offer consumer products and services and has directed banks to provide financing to them. Previously, the government would build some infrastructure to stimulate the economy, but now it has turned to policies such personal income tax cuts. This is a shift and it’s all pointing toward consumption.
It is now more consumer-oriented by a wide margin. If you look at the index weight for the MSCI and how it has developed over the years, you will see that these changes are just reflecting the changes in the economy. For example, within the MSCI China index, the weight in energy, industrials and materials had fallen from 30 per cent to 13 per cent over the past decade while consumer discretionary exposure has increased from 3 per cent to 20 per cent.
Andrew Mattock is portfolio manager of the Matthews China fund. The views expressed above are his own and should not be taken as investment advice.