Overview
There are always cool brands. Ones that are hitting consumers globally with the right proposition and gaining market share. Just, historically, not many of them have been Chinese. That may finally be changing. But can being cool now also add up to being durable later? Listen to the podcast here.
Visible recognition
From Labubu dolls to EVs to AI, 2025 has turned up the volume on Chinese products and Chinese ideas, but it’s a tune investors need to listen to carefully.
At home, the government is subsidising consumer spending through a variety of direct and less direct channels. And abroad, the work businesses have put in to becoming globally competitive seems to be showing up not just in ‘Made in China’ labels on the shelves, but in hard sales numbers for homegrown brands.
“They’re becoming more recognised for different reasons,” says Fidelity International fund manager Dale Nicholls. “Some have the right brand proposition. Some are very cost competitive. But their success is what is getting people’s interest.”
Beijing’s policymakers have set their sights on an economy that doesn’t just do the heavy-lifting of bulk production for foreign multi-nationals, but rather develops its own value and its own global names to dominate the decades ahead. That means consumers in China spending more and consumers worldwide buying Chinese not just because it’s cheaper, but because it’s best. Not just because it’s functional, but because it’s cool.
“Chinese companies are climbing up the value chain,” says Cynthia Chen, another fund manager looking at Chinese consumer companies. “The entertainment industry: games, movies, dramas, standup comedy. And in consumer electronics, autos, sportswear and cosmetics they are gaining market share from international competitors.”
Cool for now
A central plank of the government’s effort at home is subsidies that encourage demand for particular consumer goods across the economy or provide the overall liquidity and confidence to spur household spending.
The property sector has undermined that push but is stabilising. Corporate winners are emerging but need to be looked at carefully.
One question is valuation. Some companies have done well and have made the most of their moment. Labubu dolls may be the most popular thing to have on your handbag right now but consumers in general are getting pickier.
“Businesses really have to work hard,” says Nicholls. “They have to provide features, functionality, and an emotional connection to their brands.”
With that in mind, he believes there may be opportunities in the more staple areas of the consumer market.
“Consolidation is happening - be it on beer, on dairy, or on water. Coke bottlers, for example, achieved price rises last year and the risk reward is shaping up well,” says Nicholls.
Policy-distorting cycles
The subsidies may be generating more spending, but Chen worries that may only be pulling forward demand, rather than generating an additional boost.
“If we look at past development in China, every time the policy phase ran out there was a significant decline in demand afterwards,” she says.
“Now the bigger the ticket size, the bigger the distortion. Previously, stimulus policies tended to last at most two years; this time around, the EV sector has enjoyed stimulus for a decade. So imagine if, starting next year, the policy began to subside. Capacity utilisation in the car industry now is only around 50 per cent - worse than it was 10 years ago and much worse than 20 years ago. So if the subsidies phase out, we will see either severe price competition or a significant decline in volumes.”
Each producer claims to have a unique angle to survive this competition, adds Chen, but in aggregate, the industry as it stands is not sustainable.
It's very hard to pinpoint and take a bet on who is going to be the ultimate winner, adds Nicholls, but the safer way to play this is to choose some of the better positioned component suppliers, be they battery or powertrain producers.
“They may have more reasonable valuations.”
Listen to more of Dale and Cynthia’s discussion with hosts Stuart Rumble and Taosha Wang here.
