Date
24 October 2017
Nike chalked up a strong quarter despite a sluggish domestic market thanks to robust growth in the Greater China region. Photo: Nike
Nike chalked up a strong quarter despite a sluggish domestic market thanks to robust growth in the Greater China region. Photo: Nike

Who is winning the battle for China’s growing middle class?

The latest annual Central Economic Work Conference can’t stress enough the importance of consumption upgrade as a key national growth policy.

Indeed, China has more than 225 million middle-class consumers, making it the world’s largest, and the number is tipped to reach 400 million.

As mouthwatering as the market seems, Chinese brands may lose out to foreign rivals as mainland consumers aspire for better quality.

One example is sportswear.

Nike reported strong second-quarter results that far exceeded market expectations thanks to 17 percent growth in its Greater China sales compared with the year before, which more than made up for a sluggish home market.

Greater China is the company’s second largest market; Japan ranks a distant third.

Nike’s Greater China sales gain beat China’s GDP growth clip by a wide margin. GDP growth rate has stayed at 6.7 percent in the past three quarters.

Arch-rival Adidas has done well in Greater China, too, reporting a sales expansion of 22.5 percent in the first nine months.

Nike and Adidas grabbed 14.3 percent and 13.8 percent of China’s sportswear market, respectively, last year, up 3.1 and 5.3 percentage points from four years ago, according to data from Euromonitor.

By contrast, none of the Chinese homegrown brands controls a double-digit market share.

The gains by the two giants may in fact have come from crowding out indigenous brands.

Li Ning (02331.HK), Xtep (01368.HK) and China Dongxiang (03818) have registered slow sales this year.

While the Chinese government and the private sector both regard consumption upgrade as a key economic driving force and a tremendous business opportunity, one precondition to realize the market potential is that local offerings have to be competitive enough to win the love Chinese customers.

This article appeared in the Hong Kong Economic Journal on Dec. 22

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Hong Kong Economic Journal columnist

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