The narrative presented by Byambajav Dalaibuyan and Julian Dierkes in  ...
2020-07-29 7 ENGLISH REPORTS
Although we see short-term pressure from Covid-19, growth in disposable income remains a long-term driver, as discussed in our Blue Paper (Why we are bullish on China (Feb 13, 2017)), for consumption moving from basic needs (physical goods) to psychological needs and self-fulfillment needs (i.e., services and experience-related consumption). Reshored consumption would be mostly driven by highincome consumers – the primary group of people for overseas education and global travel, so that the potential incremental expenditure in the domestic market would be more focused on life-qualityupgrading consumption. In our base case, we estimate a US$100bn reshoring amount from overseas expenses, with respective lower and upper bounds at US$70bn and US$130bn. Considering China's 20% savings rate, the allocation of the remaining potential spending power of US$100bn could be spread out among various categories, such as luxury, beauty, health and wellness, sportswear, high-end auto, and service-related and inspirational consumption ( Exhibit 6 ) – amounting to a combined market size of roughly US$1trn.
Defying market concerns about supply chains moving out of China amid continued US-China trade tensions, more global MNCs, we expect, are likely to adopt an "in China, for China" strategy – in view of: (1) China's massive domestic consumption market, and (2) policymakers' ongoing efforts to accelerate the country's economic opening up. Overseas consumption reshoring would be an additional boost to any such trend. In particular, we see more potential for MNCs in the luxury, beauty, fashion, and sportswear segments to adjust their businesses in China (including pricing and supply chain arrangements), given their high revenue exposure to China. Besides foreign MNCs, Chinese companies that have been export-oriented could also shift to growing their domestic businesses in view of the growing "stay-home" economy.
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