Spending in China’s ‘small’ cities will triple to $6.9 trillion; here’s who’ll benefit

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.

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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.

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: