“The Young China generation – born between 1985 and 1995 under China’s One-child Policy – are often referred to as “little princess and princesses”. They are a generation that is most receptive to new technology and embrace cyberspace. They are well educated, have sustainable earnings power, and have a strong desire to spend on upgrades. We believe this relatively affluent young group is replenishing China’s future middle class, as the lower-income elderly phase out,” said Kevin Yin, Head of Regional Consumer Research.
Young China generation embraces cyberspace
The characteristics of the Young China generation include: heavy usage of the Internet, with over 60% of the people born in the ’90s spending more than three hours surfing the Internet on smartphones; higher discretionary incomes leading them to spend more time and money on entertainment, movies, gaming, travel, and dining out; finally, a rising social consciousness, where environmental protection is becoming an increasing concern.
Internet proliferation of the Young China generation has led to explosive growth in the China e-commerce and O2O space, according to Dick Wei, Head of Non-Japan Asia Internet Research. “Post 90s’ are naturally adaptive to the fast evolving digitized world, this leads to a rapid increase of e-commerce sales in China. There were 277 million “post 90s” Internet users in China by the end of 2014, and Internet penetration of this generation is 79.6%, 31.7% higher than the national average of 27.9%,” said Mr. Wei.
“The ‘post 90s’ probably are the first generation who are willing to spend most of their money on services than goods. Among the e-commerce related APPs, online shopping APPs has the highest adoption rate, follow by online payment and internet banking.”
E-commerce penetration rate to at least double by 2020E
E-commerce sales increased 49.7% year-on-year in 2014, accounting for 10.6% of China’s total retail sales. E-commerce penetration reached 10.7% in 2014, much higher than the US’s 7.6% and Japan’s 3-5%. Credit Suisse forecasts e-commerce penetration rate to at least double by 2020 to reach at over 20%, according to Credit Suisse estimates.
It is also worth noting that O2O food delivery is among the fastest growing e-commerce activities in China, 56.4% of the 19-24 age group has used O2O food delivery services. Credit Suisse forecasts China’s O2O food delivery market size to reach RMB41.75 billion by 2017 from RMB9.51 billion in 2014, representing a compound annual growth rate (CAGR) of 63.7%.
Entertainment and sports are a beneficiary of the Young China
Entertainment and sports is another beneficiary of ‘Young China’, said Media analyst David Hao. “We believe that this rapid increase in individual disposable income will lead to key implications for consumer spending patterns, switching from basic needs to higher level needs. This gradual transition will mark a new era as the population starts to crave greater cultural satisfaction,” said Mr. Hao.
China’s box office grew at 40% CAGR for the past five years to reach RMB29.6 billion in 2014 and is expected to grow at 20% CAGR over the next five years, overtaking the US for the No.1 spot globally in 2018 to reach RMB100 billion. Cinemas are the biggest beneficiaries to emerge from this trend, and the Young China generation is the key driver. According to an audience study by Entgroup, more than 70% of the movie-going audience is aged below 30. The growth of O2O online ticketing also stimulates the expansion of China’s box office. In 1H15, online ticketing overtook offline ticket sales as the No.1 channel, with 66.5% of total box office. Credit Suisse expects online ticketing to account for 80% of domestic movie box office by 2020.
In terms of the growth potential for sports industry, Mr. Hao projects the revenue to reach RMB3 trillion by 2025 with a 19.4% CAGR, from RMB427 billion in 2014. Currently, China’s sports industry is only about one-tenth of the US market.
“The drivers of growth come from both professional and amateur sports. For the professional leagues, a key factor is to increase the commercial value through greater flexibility in the regulatory environment and to increase the overall competitiveness. A notable example is the Super League, which has become the No. 3 league in terms of player transfer fees, after the Barclays Premier League and the Spanish La Liga. The Super League sold its broadcast rights for RMB8 billion for 5 years, a 20 times increase from 2014. China also has a vast population that participates in amateur sports activities. Marathon is the most notable example. According to the Chinese Athletic Association, the number of marathon race participants increased from 500,000 in 2012 to over 1 million in 2014,” said Mr. Hao.
Rising social and environmental consciousness
Another distinct characteristic for the Young China generation is their rising social and environmental consciousness. “We remain positive on the China Environment sector, with solid fundamentals underpinned by robust treatment demand growth, non-stop upgrade potential, and consistent policy support. The 13th Five-year plan for the China environment sector will provide a consistent policy push, with a more aggressive investment plan of RMB10 trillion, coupled with higher targets for air and water quality. Particularly, higher discharge standards of waste water treatment plans is likely to be the most positive incremental policy change for the environment sector and the water segment,” said Trina Chen, Head of Basic Materials and Environmental Research.
Building talent bench to better serve clients in China
In an effort to provide a best-in-class product on the China market to help clients navigate this important market, Credit Suisse announced a series of new hires to strengthen its investment banking coverage and China A-share research capabilities. Credit Suisse recently announced its Strategic plans to double pre-tax income and client assets under management in the region by the end of 2018, with China being the key growth driver.
The new hires include: Li Chen, Managing Director, China A-share strategist; Sam Li, head of China Technology analyst; Charles Zhou, Diversified Financials analyst; Anson Huang, Chinese Banks analyst, David Hao, China Media analyst; and Kyna Wong, China Technology analyst. In Investment Banking, Richard Kao, re-joins Credit Suisse as Co-head of Corporate Finance, Greater China.
CREDIT SUISSE IN CHINA
Credit Suisse is a leading global financial services company in the region and has a long-term commitment to China, which today stands as our most important growth market in the region. The bank has maintained banking ties with China for over 60 years, and has had a presence in the country for more than 30 years, with representative offices currently in Beijing, Shanghai and Guangzhou, as well as a Bank Branch in Shanghai. The bank also has a stake in a securities JV with Founder Group and an asset management business in China with Industrial and Commercial Bank of China. As of June 2015, Credit Suisse’s asset management joint venture ICBC Credit Suisse is ranked as the largest Sino-foreign joint venture in China by assets under management (AuM), with total AuM of over RMB 750bn, and the fourth largest asset management company in China ranked by public mutual fund assets.