Six Industry Opportunities As A Result of Population Change

By Joe Zhang

Recently， at the tenth meeting of the Central Committee for Financial and Economic Affairs， Chinese President Xi Jinping said that common prosperity is an essential requirement of socialism， and that it is important to promote common prosperity through highquality development. The focus of achieving common prosperity is to address a series of inequalities and form an olive-shaped income distribution structure that tapers off toward both ends from the middle. It is also imperative to release the huge consumption potential of the country to achieve common prosperity.

China’s population structure is undergoing changes， and exhibits certain characteristics including low fertility， accelerated ageing， people of Generation Z accounting for 15% of the labor force， small families， talent advantages emerging and the potential for urbanization. A report published by CMS Securities has pointed out that against the background of changes in the population structure， six industries will have development potential.

The silver economy： the emergence of a new generation of elderly people

According to a UN prediction， there will be approximately 300 million people aged over 60 years old by 2025 and 360 million elderly people by 2030. From the perspective of the demand side， the scale of the silver economy will reach RMB 7.5 trillion in 2025 and RMB 14 trillion in 2030， with a 10-year CAGR of 12.4%.

The structure of consumption by China’s elderly people in 2019 was as follows： daily consumption accounted for 58%， medical health accounted for 23%， social entertainment accounted for 14% and elderly financial services accounted for 5%. Compared to the year 2018， the proportion of daily consumption has dropped and the proportion of medical health and social entertainment has increased， which showed a clear trend of consumption upgrading.

CCID Consulting released a report entitled 2020 China Health and Elderly Care Industry Innovation and Investment Trends. The report presented different development stages based on the attention to certain different sectors in terms of products and product maturity. Sectors with fast growth development and highly-focused products include： intelligent monitoring facilities， smart wristbands， intelligent detection facilities， smart speakers， communities for the elderly， apartments for the elderly， health foods for the elderly， rehabilitation technical aids for the elderly and hearing aids.

The analysis report of CMS Securities suggested a focus on the following segments：

· Health care products for the elderly： health products for the elderly population are mainly used for the prevention and treatment of cardiovascular disease， cancer， diabetes， brain diseases and ageing in general. At present， the industry is strictly regulated. With the release of the Health China 2030 Outlook， the industry is being favored by government policies. In addition， a new generation of elderly people have started to pay increasing amounts of attention to the prevention of common diseases for the elderly， and industry demand will remain strong in the future. It is expected that the industry will maintain a growth rate of nearly 10% over the next five years.

· Medicine for the elderly： diabetes， cardiovascular and cerebrovascular diseases are commonly seen among the elderly. The related consumption trends reflect the rigid demands of the elderly. With the expansion of the older population， the market scale of medicine for the elderly will rise further.

· Household medical equipment：common household medical equipment includes blood glucose meters， sphygmomanometers and other testing equipment， massage chairs， massage instruments and other health care equipment， household ventilators， oxygen generators， atomizers and other rehabilitation equipment. Compared with developed countries， the penetration rate of household equipment in China is relatively low. For example， the penetration rate of domestic ventilators， massage chairs and sphygmomanometers is only 2%， 1% and 7% respectively. With an increase in the penetration rate， the industry will usher in rapid growth.

· Rehabilitation medical services： on June 16 2021， the National Health Commission and eight other departments issued the Opinions on Accelerating the Development of Rehabilitation Medical Work， in order to promote the development of the medical rehabilitation industry. According to research statistics from the Lancet， the total number of Chinese people in need of rehabilitation services reached 460 million in 2019， making China the world’s largest country in terms of demand for medical rehabilitation treatment. As such， there is great potential for industry development.

·Pension real estate： at present， China’s pension structure is 90% home-based pension， 6% community pension and 4% institutional pension. However， this industry is still in the early stages of development， with the supply of community pension services and the number of pension institutions being insufficient， and the business model is unclear. At the same time， the supporting service mechanism for home-based elderly care has not been properly established， and industry potential here is huge for the future.

· Incontinence products for the elderly： a small and important segment. At present， the penetration rate of incontinence products for the elderly in China is 5%， which is far lower than that in developed countries. The industry is expected to grow by 20% in the next five years.

Career-oriented Generation Z and emerging new consumption trends

At the moment there are approximately 230 million GenZers， referring to people born between 1995 and 2009. The second prominent change in the population structure for the next decade is that 73% of Generation Z will become new workers， and their consumption capability will further improve. In the next decade， new consumption trends led by Generation Z deserve special attention.

· New style tea beverage： Generation Z are big fans of “new” tea， and approximately 65% of these tea customers are from Generation Z. In recent years， Heytea， Naixue’s Tea， chayanyuese and other modern tea brands have emerged and have quickly become popular beverages due to the internet. It is estimated that the industry will grow by approximately 20% in the next five years. In 2025， the industry value is expected to reach RMB 90 billion.

· Guochao （or Chinese fashion trend）： as people’s confidence increases， the consumption of Guochao has become a trend among Generation Z. This mainly includes Guochao brands， national cosmetics， Guochao clothes and other segmented sectors.

· Beauty clinic： Generation Z focuses on their looks and accounts for 50% of beauty clinic customer groups. At present， the penetration rate of beauty clinics in China is much lower than in the U.S.， Japan and South Korea. The industry has large growth potential and will grow by approximately 20% in the next 5 years.

· Script-killing/escape rooms： script-killing games have become a popular type of offline game in recent years. Approximately 18.7% of players of this type of game are from Generation Z. As these people start work， it is estimated that this percentage will increase.

· Art toys： as the Bubble Matt became popular， art toys have started to attract public attention. Generation Z is willing to pay for the market and accounts for 50% of the customer group. It is estimated that the industry will increase by 30% in the next 5 years， and will reach approximately RMB 100 billion in 2025.

· Online cultural entertainment： Generation Z spends a lot of time consuming online entertainment， and are willing to pay for virtual games and knowledge. It is estimated that Generation Z spends approximately RMB 100-130 each month on online cultural entertainment， including videos， music， games， online literature， animations and live-streaming. It is estimated that this monthly spending will further increase.

Small family consumption after the number of one-person and two-person households increase

At present， China’s families have become increasingly small. Oneperson households and two-person households account for 20% and 30% respectively. In contrast to earlier family consumption， small families are mainly focused on convenience. The number of electric appliances， furniture and vehicles owned by each family member has further increased. Therefore， CMS securities recommended the following segmented sectors：

· Ready-made meals： Readymade meals greatly reduce the time and effort spent on cooking， and meet small families’ needs. At present， the penetration rate of ready-made meals in China is only 10%， and there is much room for improvement in this area in the future.

· Composite seasoning： composite seasoning mainly includes hot pot condiments， dipping sauces and Chinese， Western， Japanese and Southeast Asian composite seasonings. It is another solution to help reduce cooking time. At present， the penetration rate in China is only 30%.

· Small and creative household appliances： as families have become smaller， small household appliances suitable for one or two people have become popular， such as hot pots and barbecue pots. In addition， new household appliances that reduce human labor， such as dishwashers and floor sweeping robots， are also very popular. It is expected that this industry will grow by nearly 12% in the next five years， and the industry scale will reach RMB 320 billion in 2025.

· Smart homes： smart homes refer mainly to the automation of home appliances and reflect the convenience and intelligence of future life. This industry space is large and is expected to reach RMB 500 billion by 2025.

· New retail： the demand of small families for shopping convenience will change the retail mode of traditional large supermarkets. The emergence of new retail models such as convenience stores， fresh food e-commerce and community group purchasing are catering to the needs of small families.

· Pets： one person single families and two person elderly families have companionship needs. In recent years， the number of pets in China has increased， which is closely connected with the ever-expanding companionship needs of small families. At present， the penetration rate of pet food in China is only 14%， which displays great room for improvement.

Continuing consumption upgrading and the population of quality consumption

Consumption upgrading is a slow but continuous process. In 2020， China’s per capita GDP was approximately USD 10，500. According to Cai Fang， a member of the Monetary Policy Committee of the Central Bank， China’s per capita GDP will reach USD 22，000 in 2025， close to the level moderately developed countries. Therefore， with China’s economic development， consumption upgrading is inevitable. Consumption upgrading is mainly reflected by the fact that people have started to pay more attention to quality consumption， health consumption and service consumption.

Based on the previous analysis， CMS Securities said， in the analysis report， that the following sectors deserve special attention：

· Leisure snacks： with the upgrading of consumption， people have higher requirements for the quality of leisure snacks. Therefore， branded and quality leisure snack consumption will become mainstream in the future.

· Refined beer： the consumption of refined beer in China has increased this summer， reflecting people’s higher requirements for taste， quality and brewing techniques of beer as consumption is upgraded.

· Home cleaning and nursing： as people pay more and more attention to health and hygiene， home cleaning and nursing has become a key area of focus， and quality and branding will become more important.

· Stomatology， ophthalmology and hair care： with the improvement in people’s health awareness and the pursuit of beauty， stomatology， ophthalmology and hair care have become fields benefiting from consumption upgrading. At present， the penetration rate of stomatology， ophthalmic and hair care in China is far lower than that in developed countries. These areas are growing fast and will maintain a high growth rate in the future.

· Functional food： functional food is a type of food that covers a wider range than health products. It is also benefiting from the improvement in people’s health awareness and their pursuit of beauty.

· Smart wearable devices： smart wearable devices such as bracelets and watches can monitor the blood pressure and calories consumed by the human body at any time. For patients with chronic diseases， professional medical smart wearable devices can better help doctors perform monitoring and diagnosis.

Great changes in people’s asset allocation and wealth management

At present， most of China’s household assets are invested in real estate， and the proportion of financial assets is low. According to the Urban Household Wealth Report released by the Guangdong Development Bank and the Southwest University of Finance and Economics， nearly 80% of China’s family assets are concentrated in real estate， and the proportion of financial asset allocation is only about 12%. In the next 10 years， China’s population growth will show a downward trend， and the total population will see a peak. The main driving force behind house prices will weaken， which will lead to great changes in residents’asset allocation， and the proportion of financial asset allocation will greatly increase. During this process， China’s wealth management industry will further rise.

According to industry estimates， the current asset scale of China’s wealth management industry is approximately RMB 89 trillion. With the gradual transfer of China’s residents’ asset allocation to financial assets in the future， the scale of the asset management industry is expected to reach RMB 285 trillion in 2030， and the market space of the wealth management industry will increase accordingly. It is estimated that the compound growth rate of the wealth management industry in the next five years will be 17.5%， and the industry scale will reach approximately RMB 3.7 trillion.

The rise in China’s intelligent manufacturing

In the next decade， the scale of China’s labor force will show a slight downward trend， and then a rapid decline. At the same time， the rise and upgrading of China’s manufacturing in the post-pandemic era will also be unstoppable. In this context， China’s intelligent manufacturing will benefit the most.

From the perspective of the industrial chain， intelligent manufacturing mainly involves four links： perception， decision-making， implementation and application. The specific subdivision fields include： sensors of the sensing layer， machine vision， RF devices and PLC controllers that collect information. The various sensors will upload the collected information at the decision-making level for data storage and processing. Therefore， the decision-making level mainly involves industrial internet platforms， database systems and industrial software. When software and platforms produce results to be executed based on the information， the terminal of the execution layer will be responsible for the operation. The equipment of the execution layer mainly includes industrial robots， CNC machine tools， 3D printing equipment and other automation equipment. This process will eventually be applied to the daily operation of intelligent factories and automatic production lines， so as to realize intelligent manufacturing.