Analysis: Chinese flock to local brands, a golden opportunity for investors

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BEIJING / HONG KONG – He Shuang, an American university student stranded in her hometown of Chongqing in southwest China during the pandemic, added more than 300 national brands to her list of favorites on the mall online Taobao from Alibaba.

As with He, Chinese brands are very popular with most buyers and have spurred billions of dollars in investment, as consumers increasingly make patriotic choices amid growing backlash against foreign brands. . here in the countryside.

An increase in online shopping after people were forced inside due to COVID-19 last year, a market recovery since then, and an infrastructure that allows vendors to grow quickly have also propelled the market. demand for local brands.

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“Once you try, you find that the quality of local products is as good as foreign products,” said He, 19, who favors local brands, from Carslan eyeshadows and Feiyue sneakers to Bestore snacks. Co and Miniso housewares.

Maia Active, a sportswear manufacturer backed by Sequoia Capital, said its products are designed based on the body measurements of Asian women and, as a result, provide local customers with a better fit and more comfort than their Western counterparts.

FILE PHOTO: Chinese brands are very popular with most buyers and have boosted billions of dollars in investment, as consumers increasingly make patriotic choices amid growing backlash against foreign brands here in the country. REUTERS / Tingshu Wang / File P

In line with demand, investors have also invested funds in local consumer brands this year.

Chinese consumer companies raised 69.7 billion yuan ($ 11 billion) from primary market investors in the first five months, more than double the amount from the previous year, according to Cygnus Equity, a Chinese investment bank.

“Beauty, food and beverage brands are the most popular. Recently, hotpot and ramen brands are particularly popular, ”said Ming Jin, Managing Partner of Cygnus.

Up to 200 brands are currently seeking new capital from investors, bankers and investors said.

“China is the easiest market to build something from zero to a sales target of 100 million yuan,” said a private investor in the Nayuki tea chain operator, declining to be named because he was not allowed to speak to the media.

Nayuki last week raised $ 656 million in a Hong Kong float, which brought him a valuation of $ 4.4 billion, more than double the level of a December round.

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Weilong Delicious Global Holdings, whose spicy flour-based sticks sell for less than 5 yuan a pack, raised 3.56 billion yuan in May from large investors such as Tencent, Jack Ma’s Yunfeng Capital, CPE, Hillhouse Capital. and Sequoia Capital China. The snack maker was valued at nearly 70 billion yuan.

Genki Forest, a Sequoia-backed soft drink brand that seeks to challenge Coca Cola, said it was valued at $ 6 billion after a fundraiser in April, ten times more than 18 months earlier.

Its fundraising has attracted investors such as the private equity arm of Louis Vuitton owner LVMH and Singaporean state investor Temasek.

Local vs global

At JD.Com’s online shopping festival this month, Chinese brands’ sales growth was 4% higher than international brands. Their customer base growth exceeded that of international brands by 16%, JD.com said.

Chris Mulliken, partner at Shanghai-based consulting firm EY, said nationalism was a factor in the popularity of local brands, including pride in China’s recovery from COVID-19 even as several other countries grapple with high infection rates.

“People travel (although in their own country) and take the opportunity to rediscover their own country, go back to their customs and discover new Chinese brands,” he said.

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Another catalyst was the recent cotton ban in Xinjiang imposed by several global brands including H&M, Nike and Adidas over concerns over alleged rights violations in the province, which offended many Chinese consumers. China strongly denies these allegations and asserts that all work in Xinjiang is consensual and contractual.

Shares of domestic sportswear producers Xtep, Li Ning and Anta rose 196%, 60% and 38% respectively since April.

Traders cautioned against significantly higher valuations, while also saying the demand trend will hold for a long time.

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“Consumers no longer idolize international and multinational brands. They love products and brands that speak for themselves,” said Nina Gong, managing director of Shanghai-based private equity firm Carlyle Group.

($ 1 = 6.4525 Chinese yuan)

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