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THE MARKET OPPORTUNITY

CHINESE MIDDLE CLASS ESTIMATED TO REACH 700 MILLION IN 2020

COVID-19 has had an impact on the Chinese economy, but China looks set for an average economic growth of 5.7% a year from 2021-25 before slowing to 4.5% a year from 2026-30, according to the Centre for Economics and Business Research (CEBR).

With the Chinese middle class forecast to reach 700 million people in 2020 and China being the second largest import country in the world, the country continues to be one of the most attractive markets for exporters from Australia and the rest of the world.

PWC GLOBAL CEO SURVEY 2020

The PWC Global CEO Survey 2020 found that lower-tier cities are the hidden gems of the Chinese consumer market, with faster growth in disposable incomes and stronger purchasing power propelling consumer spending.

COVID-19 has contributed to a spike in social media activity and the rapid growth of online sales through live stream and KOLs (Key Opinion Leaders).

There has been a consistent increase in spending on groceries during and after the pandemic, with 49% of respondents in the survey having increased their spend on groceries and 37% spending more on meal kit services. Two thirds of respondents buy their groceries online now and two in five buy from local/independent stores.

Even before the pandemic, Chinese people were making dietary changes for health reasons. 73% of respondents are now incorporating more plant-based food into their diet and 62% regularly take a supplement or vitamins, products which are the focus of JAT’s own in-house brands.

CHINESE CONSUMERS WANT AUSTRALIAN PRODUCTS

The Australian “local Chinese market” has seen a strong growth in personal shoppers, or ‘Daigou’ in Chinese, in the past few years pre-COVID-19. The numbers have decreased significantly during the pandemic, but as conditions improve, the Daigou sales channel can be expected to grow again.

Many Daigou start out as Chinese students in Australia and they use social media platforms such as WeChat or other C2C and B2C e-Commerce marketplaces in China to advertise Australian products. As of January 1, 2019, China introduced a new e-Commerce law and all Daigou must now hold a business licence to operate.

CHAFTA AND THE RECENTLY SIGNED RCEP OPENS THE DOOR

The Chinese Australian Free Trade Agreement (ChAFTA) came into force in December 2015, after nearly 10 years of negotiations. In 2018-2019 Australia exported about $153 billion worth of goods and services to China, with China currently being Australia’s biggest export destination. Over time, ChAFTA will mean that 95% percent of Australian exports to China will be tariff free.

The Regional Comprehensive Economic Partnership (RCEP) is a regional free trade agreement that will complement and build upon Australia’s existing free trade agreements with 14 other Indo-Pacific countries, including China. The RECP was signed on 15 November 2020 and will enter into force 60 days after six ASEAN Member States and three non-ASEAN Member States have ratified the agreement. It will be the world’s largest free trade agreement.

THE CHALLENGE

Prior to the pandemic, Australian producers were already experiencing the consequences of relying too heavily on the informal Daigou trade, as the Chinese authorities introduced changes to import regulations and Daigou deliveries to bonded warehouses reportedly fell 50%. The profits of some high-profile Australian producers were hit and a drop in the share prices followed. The abrupt decline in imports prompted Chinese authorities to allow a one-year grace period to fully implement the new regulations, but the effect on the Daigou industry has been severe. With the pandemic and the closure of Australia’s borders, this channel has been further dramatically affected.

THE SOLUTION

JAT has the licences and certifications, as well as distribution channels and top-level contacts, in place to launch and grow Australian products in the Chinese market.

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