Guess Who’s Driving China's Robot Revolution?

Can diapers tell a tale?
It’s an odd but powerful footnote in the  Race to the Factory of the Future to realize the critical importance of China’s middle-class mothers going from using 20 diapers per month for their babies in 2010 to double that amount five years later.

It’s especially telling when the diapers that they are using twice as many of are Japanese Merries brand, considered the best in Asia.

Wang Jingyi, a 25-year-old from Beijing, typifies the local tendency to opt for Japanese versions: “I’ve never used a Chinese brand diaper,” she told the Financial Times.

Japan’s Kao Corp, manufacturer of Merries can’t meet demand and has had to ration supplies; Japan’s Zuiko, manufacturer of the machines that make Merries, can’t supply its machines fast enough to increase supply until early 2017.

Unmet diaper demand means loss of market share while millions of dollars of revenue go unrealized…and would-be customers are left in panic mode or angry or both.

“The Asian nappy [diaper] market [for rising middle class consumer populations, especially in China, but also Malaysia, Thailand and Indonesia] with annual sales of about $12 billion, [are] forecast by CLSA to reach $45 billion by 2030.”

China’s middle class of 109 million (Credit Suisse; see chart below) is having babies, lots of them, which has nothing to do with the relaxation of the one-baby policy (terminated in 2015), which has had no discernable effect on births as of 2016. Millions of couples, who themselves grew up in one-child-only households, and enjoyed it, are opting to ditto a single child for their own parenting.

Chinese parents, instead of putting their disposable income into having more babies, are spending more to maintain a good lifestyle. “For consumer brands, both international and local, the challenge is to win the hearts of China’s rising middle class. They are educated and well informed, and they want to spend money on quality products, so long as the price is fair.”

“Rising income levels have led consumers to focus more on questions ofquality and health, for which they are now able and willing to pay.” Hence, their penchant for Merries.

Spending by China’s middle class now accounts for 13 percent of world GDP, says Joshua Lu, a Goldman Sachs analyst. Again, that’s world GDP!

Urban mass conversions
Per capita GDP for these 109 million, referred to as the “urban middle class” is $10k annually. An even larger group of 500 million, called the “urban mass” makes $5k to $6k annually. With the government targeting real wages to double between 2010 and 2020, millions of present-day urban mass members will elevate themselves up to urban middle class in a decade or less.

Astonishingly, Nick Lardy of the Peterson Institute for International Economics, remarks that these same wage earners save their wages at arate of 40 percent. For every ten dollars earned, the Chinese save four dollars. Lardy says that is the highest savings rate of any economy in all of recorded history. By comparison, the U.S. saves its earnings at a rate of 6 percent.  

Since less than 7 percent of these savers had their savings in the stock market (Chinese overall distrust the stock market), very few got burned when the market crashed in 2015.

In the meantime, and also unprecedented, the Chinese economy has grown 25 times larger than it was in 1978.

Between wages and savings the collective purchasing power of the Chinese middle class is enormous.

For example, Chinese travel and tourism boomed last year—even though China is in an economic slowdown.

“Chinese tourists spent $215 billion outside mainland China in 2015, which is a 53 percent rise from the $140 billion spent in 2014.”

And for 2016, they spent even more: “2016…grew by $11 billion to $261 billion, an increase by 12 percent. 

In 2000, a modest 10.5 million overseas trips were made by Chinese residents. Fast forward to 2017 and the figure was 145 million – an astounding increase of 1,380 percent. And spent more than the total GDP of the Ukraine!

Incredibly, only 10 percent of China’s citizenry have a passport. By comparison, nearly 50 percent of U.S. citizens have a passport. What will the Asian travel industry be like when 50 percent of China’s citizens have passports?