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 Code Company One-year price change Price May 30 (intraday) Market Cap
JAT JATENERGY 9.35714285714 0.145 76.55M
BUB BUBS AUSTRALIA 4.59259259259 0.755 286.40M
WHA WATTLE HEALTH AU 3.18639053254 1.415 225.64M
BXN BIOXYNE 3.125 0.066 44.81M
BAL BELLAMY'S 2.28678206137 16.71 1.79B
AU8 AUMAKE 2.25 0.26 73.00M
A2M A2 MILK 2.12578616352 9.94 7.02B
CLV CLOVER CORP 1.90217391304 1.335 209.78M
SM1 SYNLAIT MILK 1.6171875 10.05 1.74B
S66 STAR COMBO (*listed May 2018) 1.51 1.255 77.02M
GRB GAGE ROADS BREWING 1.45714285714 0.086 75.72M
NNW 99 WUXIAN 1.32558139535 0.2 278.32M
LON LONGTABLE GROUP 1.24285714286 0.785 74.70M
PPS PRAEMIUM 0.868421052632 0.71 282.23M
PHK PHOSLOCK WATER 0.823529411765 0.31 154.18M
AHF AUSTRALIA DAIRY 0.590909090909 0.175 44.92M
MHD MILLENNIUM 0.4375 0.046 6.35M
AB1 ANIMOCA BRANDS 0.407407407407 0.038 18.56M
FOD FOOD REVOLUTION 0.375 0.055 23.87M
CSS CLEAN SEAS SEAFOOD 0.368421052632 0.052 90.03M
WNR WINGARA 0.277777777778 0.345 33.39M
NAM NAMOI COTTON 0.25 0.5 66.49M
AVG AUSTRALIAN VINTAGE 0.234693877551 0.605 168.79M
SFG SEAFARMS GROUP 0.208955223881 0.081 110.53M
CZZ CAPILANO HONEY 0.142167011732 16.55 156.52M
D2O DUXTON WATER 0.0761904761905 1.13 87.54M
MCA MURRAY COD AUSTRALIA 0.0350877192982 0.059 23.56M
BAH BOJUN AGRICULTURE (*listed Dec 2017) 0 0.3 36.45M
HUO HUON AQUACULTURE -0.064 4.68 401.75M
BFC BESTON GLOBAL -0.0731707317073 0.19 84.23M
MTM MARETERRAM -0.0862068965517 0.265 41.72M
RGP REFRESH GROUP -0.0909090909091 0.05 6.67M
BUG BUDERIM GROUP -0.101449275362 0.31 27.53M
EHH EAGLE HEALTH (*listed Jun 2017) -0.1625 0.335 105.08M
AAP AUSTRALIAN AGRI -0.189189189189 0.03 4.57M
MRG MURRAY RIVER -0.197368421053 0.305 39.55M
TFL TASFOODS -0.275 0.145 32.02M
JJF JIAJIAFU MODERN -0.285714285714 0.1 8.52M
FRM FARM PRIDE -0.290983606557 0.865 47.73M
AS1 ANGEL SEAFOOD (*listed Feb 2018) -0.3 0.14 16.95M
HCT HOLISTA COLLTECH -0.308333333333 0.083 15.81M
ABT ABUNDANT PRODUCE -0.329787234043 0.315 18.12M
OGA OCEAN GROWN ABALONE (*listed Nov 2017) -0.34 0.165 29.60M
WLD WELLARD -0.394736842105 0.115 63.75M
BEE BROO -0.566037735849 0.115 79.07M
OBJ OBJ -0.584905660377 0.022 39.81M
FLC FLUENCE CORP -0.586021505376 0.385 168.18M
DEM DE.MEM -0.611111111111 0.14 17.23M
SKN SKIN ELEMENTS -0.6125 0.062 4.82M
DW8 DAWINE -0.647058823529 0.006 3.51M
MGC MG UNIT TRUST -0.755555555556 0.22 125.96M
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