China’s “smaller cities” are becoming bigger, richer, and more eager to spend — which is good news for ASX-listed China-focused exporters.

Private consumption in China’s smaller cities “could be on track to triple between 2017 and 2030”, investment bank Morgan Stanley predicts in research released yesterday.

The ASX’s 55 or so (non-resources) China-focused exporters have performed strongly over the past year.

Measured over 12 months, more than half of the stocks show gains — some very significant.

Dairy or infant formula exporters such as Jatenergy, Bubs, Bioxyne, Wattle Health, Bellamy’s and A2 Milk have all made gains of more than 200 per cent.

>> Scroll down to see which ASX-listed China exporters are performing well

That kind of performace looks set to continue, Morgan Stanley says.

“This increased consumption potential could mean bright prospects for a range of consumer-focused industries with implications for the overall Chinese economy and global investors.

“We expect consumption in lower-tier cities to surge from $US2.3 trillion in 2017 to $US6.9 trillion in 2030,” said Morgan Stanley’s Chief China Economist Robin Xing.

Small cities drive China’s overall consumption

“These smaller cities could be the engine driving China’s overall private consumption market of $US11.8 trillion over the same period,” Mr Xing said.

Morgan highlights five key regions: Jing-Jin-Ji, Yangtze River Delta, Guangdong Bay Area, Mid-Yangtze River and Chengdu-Chongqing.

These so-called “small regional” areas have enormous populations by Australian standards.

The Jing-Jin-Ji area in north-eastern China, for example, houses more than 100 million people. The Yangtze River Delta area on the eastern coast has more than 150 million redidents.

There are in fact more than 100 cities in China with a population of one million or more.

These smaller cities are set to contribute more than three-quarters of China’s urban population growth by 2030 due to improved transport including high-speed rail, regional development, lower living costs and a more flexible “Hukou” policy.

China is reforming its Hukou system which designated a resident’s status as rural or urban based on their registered birthplace — restricting migrant workers from public services in cities.

Household consumption in China's small "Tier 3" cities is set to hit $US7 trillion, vastly outstripping growth in bigger Tier 1 and Tier 2 cities. Graphic: Morgan Stanley
Household consumption in China’s small “Tier 3” cities is set to hit $US7 trillion, vastly outstripping growth in bigger Tier 1 and Tier 2 cities. Graphic: Morgan Stanley

Which products and services will benefit?

Residents in smaller cities are increasingly valuing quality over price — which explains why expensive Australian infant formula flies out the door.

Retail segments set to benefit include home appliances, express delivery, online shopping, groceries, food and beverage milk products, movies, gambling and online entertainment.

“Consumers in the five city clusters [named above] also have a higher intention than the national average to spend on airlines and travel, property investment and education, home decoration, and electronics.

“In addition, lower-tier city households are spending more for high-frequency, low-ticket products such as beauty supplies, makeup, snacks, beverages and online groceries.

Online shopping — especially via mobile devices — was preferred.

Here is a list of ASX stocks that sell into China:

ASX CodeCompanyOne-year price changePrice May 30 (intraday)Market Cap
BUBBUBS AUSTRALIA4.592592592590.755286.40M
WHAWATTLE HEALTH AU3.186390532541.415225.64M
BALBELLAMY'S 2.2867820613716.711.79B
AU8AUMAKE 2.250.2673.00M
A2MA2 MILK2.125786163529.947.02B
CLVCLOVER CORP1.902173913041.335209.78M
SM1SYNLAIT MILK1.617187510.051.74B
S66STAR COMBO (*listed May 2018)1.511.25577.02M
GRBGAGE ROADS BREWING1.457142857140.08675.72M
NNW99 WUXIAN1.325581395350.2278.32M
LONLONGTABLE GROUP1.242857142860.78574.70M
PHKPHOSLOCK WATER0.8235294117650.31154.18M
AHFAUSTRALIA DAIRY0.5909090909090.17544.92M
AB1ANIMOCA BRANDS0.4074074074070.03818.56M
CSSCLEAN SEAS SEAFOOD0.3684210526320.05290.03M
AVGAUSTRALIAN VINTAGE0.2346938775510.605168.79M
SFGSEAFARMS GROUP0.2089552238810.081110.53M
CZZCAPILANO HONEY0.14216701173216.55156.52M
D2ODUXTON WATER0.07619047619051.1387.54M
MCAMURRAY COD AUSTRALIA0.03508771929820.05923.56M
BAHBOJUN AGRICULTURE (*listed Dec 2017)00.336.45M
BFCBESTON GLOBAL -0.07317073170730.1984.23M
RGPREFRESH GROUP-0.09090909090910.056.67M
BUGBUDERIM GROUP-0.1014492753620.3127.53M
EHHEAGLE HEALTH (*listed Jun 2017)-0.16250.335105.08M
AAPAUSTRALIAN AGRI-0.1891891891890.034.57M
MRGMURRAY RIVER-0.1973684210530.30539.55M
JJFJIAJIAFU MODERN-0.2857142857140.18.52M
FRMFARM PRIDE-0.2909836065570.86547.73M
AS1ANGEL SEAFOOD (*listed Feb 2018)-0.30.1416.95M
HCTHOLISTA COLLTECH-0.3083333333330.08315.81M
ABTABUNDANT PRODUCE-0.3297872340430.31518.12M
OGAOCEAN GROWN ABALONE (*listed Nov 2017)-0.340.16529.60M
FLCFLUENCE CORP-0.5860215053760.385168.18M
SKNSKIN ELEMENTS-0.61250.0624.82M
MGCMG UNIT TRUST-0.7555555555560.22125.96M