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FEATURE: Ten Highlights of China's Commercial Sector 2009 - 2010

China General Interest

Each year Li & Fung Research Centre publish the authoritative and insightful "Ten Highlights" research report. 

2009 was a testing year for China. Hit by the worst financial crisis since the Great Depression, the country’s macroeconomic outlook has turned cloudier. We have witnessed more difficult times for China’s commercial enterprises unseen in past several years.

However, with huge government-inspired measures to stimulate the economy, China is fortunate enough to achieve its target of economic growth. Among the government initiatives, boosting domestic consumption is, and will continue to be, high on the agenda.

This has profound implications on the developments of China’s commercial sector.

Meanwhile, many commercial enterprises in China have learnt some important lessons over the past year and are rethinking their strategies. China’s commercial landscape is changing fast.

Here is a brief summary of the Ten Highlights of Commercial Sector, 2009-2010:

Retail sales set to reach new heights with huge government initiatives to boost consumption

With a series of government initiatives to boost domestic consumption, China’s real growth in retail sales in 2009 has been the fastest since 1985, beating market expectations.

Looking forward, as China strives to reorient its economy to become more consumption-driven, policy environment will continue to be favorable for commercial businesses. Retail sales in China look set to reach new heights in the coming year.

Export-oriented enterprises eyeing the domestic market; growing calls for accelerating integration of domestic and foreign trade

To weather the challenges of shrinking global demand, many export-oriented enterprises are eyeing China’s ever-growing domestic market.

Over the past year, the Chinese government, export-oriented manufacturers, retail and distribution enterprises and industry experts have made concerted efforts to help export-oriented enterprises embark on domestic sale, bringing new changes in China’s commercial landscape. Nonetheless, there are still many obstacles in launching domestic sales.

New changes in enterprises’ mindset and more fundamental reform to integrate domestic and foreign trade are needed.

Great strides in improving China’s rural commercial and distribution networks; continuous efforts still needed

Domestic consumption in China has been primarily urban-driven. However, to stimulate and sustain domestic consumption, tapping rural demand is essential. The Mainland authorities have actively taken a series of initiatives to improve the rural distribution landscape over the past few years and those measures are constantly reviewed and further strengthened in 2009.

Government-inspired measures are much appreciated; however, effective coordination between the government and the market is the key for success.

Retailer direct-farm sourcing will continue to grow

Direct-farm sourcing is increasingly adopted by leading retailers in China. With its many benefits such as shortening retail supply chains, enhancing consumption safety and boosting farmers’ income, direct-farm sourcing has received strong government support.

Today, retailer direct-farm sourcing is relatively new in China, retailers are still experimenting different modes of cooperation with farmers.

We expect retailer direct-farm sourcing continues to receive huge attention in the coming year.

Domestic and foreign retail chain operators seek to improve competitiveness in different ways, exerting growing pressures on smaller players

Intensifying competition is prompting retailers in China to improve their competitiveness.

Domestic and foreign retail chain operators are observed to give different priorities in respective strategies in China - growing number of domestic players are paying attention to strengthening internal management such as transforming merchandising practices and enhancing supply chain efficiency through better use of information technology; meanwhile, foreign retailers in general continue to accelerate expansion into second- and third-tier cities.

These undoubtedly would cast pressure on smaller businesses. Market consolidation is set to accelerate.

Growing calls to change retailers’ profit structure and build win-win relationship with suppliers

In recent years, the profit structure of many retailers in China has changed significantly. Many retailers no longer derive their major profits from direct merchandise sales. Instead, cumbersome charges laid on suppliers become predominant source of income for many.

More and more retailers now recognize that the strained relationship with suppliers is detrimental to the health of retail sector in the long run and are trying to change the picture. However, the problem is deeply rooted and involves many vested interests

Concerted efforts between the government, industry associations and enterprises must be made. Nonetheless, this is definitely a good step in the right direction.

Going green to enhance profitability as well as to improve corporate image is catching real attention

Going green has been catching commercial businesses’ real attention in recent years. Foreign retailers are observed to be more proactive than their domestic counterparts to go green.

Going green helps retailers save costs by cutting energy bills and enhance efficiency; it also helps build socially responsible corporate image. We believe that domestic and foreign retailers will accelerate their pace for adopting green initiatives in China.

Luxury sales demonstrate strong growth momentum; lowering consumption tax and import duties on luxuries can boost domestic sales further

Global financial downturn has caused only a temporary dip in China’s luxury retail sales. China’s appetite for luxury goods has remained strong and China is now indeed the world’s second largest luxury market.

Currently luxury products in China are generally more expensive than that in overseas markets because of consumption tax and import duties levied, prompting many to purchase luxuries overseas. Our experts advocate for reform on tax and import duties levied on luxury consumption.

Online retailing continues astonishing growth; growing concerns over regulatory environment, logistics bottlenecks and credibility issues

In line with our experts’ previous predictions, online retailing continues to be one of the brightest spots in China’s commercial developments. More traditional commercial businesses in China have embarked on click-and-mortar strategy to lower operation costs and achieve wider customer reach.

E-commerce is transforming China’s commercial scene. Nonetheless, immature regulatory environment, infrastructure and logistics bottlenecks, and credibility issues remain major concerns.

Hoping for return of glory days: China’s numerous heritage brands are Rejuvenated

China has thousands upon thousands of heritage brands long taking pride in their cultural roots and historical heritage. Many of these heritage brands have however struggled to survive over the past decades.

But these years, some of them have also taken active moves to reinvent themselves. And with strong government support to protect and promote heritage brands, several heritage brands are now rejuvenated and set to make a comeback.

To read the full report click here.

To learn more about Li & Fung Research Centre and to browse their otehr publications visit their website.