Key Takeaways:
- Chinese consumers are finding emotional satisfaction in an emerging ‘joy economy’ built on affordable indulgences rather than big-ticket purchases
- The government is co-opting this trend by prioritizing psychological contentment and soft power over historically aggressive GDP growth targets
Image credit: Bamboo Works
In these economically troubled times, many ordinary retailers in China are suffering. Yet in this difficult environment, we are witnessing profound success for a segment within the “emotional economy” that is being called the “joy economy.” At the same time, we believe the Chinese government is undertaking a notable policy pivot, shifting its focus away from traditional economic drivers to explicitly encourage spending on products and services that boost consumer mood.
Faced with economic uncertainty, Chinese consumers are finding it difficult to open their wallets for large, big-ticket items like new cars and even smartphones. Instead, people are finding moments of pleasure in little things that don’t make them feel financially guilty. This affordable happiness model is resonating strongly across nearly all demographics. Whether it’s an unemployed college graduate living with their parents, a 30-something white-collar worker hanging a fuzzy creature on her bag, or children using their red envelope money from their grandparents, small splurges are deeply relevant right now.
We see this playing out heavily with domestic consumer brands. Companies like Mixue, which sells bubble tea for as little as a dollar a cup, and Chagee (NASDAQ:CHA) are thriving. Miniso (NYSE:MNSO) is seeing success with its inexpensive lifestyle goods, and Pop Mart (9992.HK) has captured the market for affordable collectible toys, most notably through its immensely popular Labubu dolls.
We can compare this to the “lipstick effect,” where consumers trade down from big purchases to small indulgences during downturns. However, we think this is a more fundamental, long-term shift in consumer behavior driven by generational replacement. The older generation of Chinese citizens was heavily focused on “chiku” — eating bitterness — and doing whatever it took to improve their lives, without much thought for personal satisfaction. Decades ago, couches in Chinese homes were notoriously uncomfortable because function mattered more than form. Today, as society becomes more prosperous, the younger generation is demanding experiences and emotional contentment, a desire they will likely retain as they age.
Shifting from aggressive growth to building a healthy China
The Chinese government seems to be actively co-opting this joy-based consumption drive. Emerging from the recent “Two Sessions” — the annual plenary meetings of China’s top legislative and advisory bodies — China’s GDP growth target is historically lower, sitting at 4.5% to 5%. For the first time in decades, the government appears comfortable toning down its aggressive focus on hardcore growth metrics. Policymakers seem to realize that you need to sell a massive number of bubble tea cups to equal the economic impact of selling just one car. As a result, they are working to transition the economy from a manufacturing and export-led model to one driven by domestic consumption, services, and retail.
But beyond the obvious economic stimulus, we believe there is a deeper, more spiritual motivation: psychological contentment. State media recently highlighted a five-year initiative to create a “healthy China.” The government recognizes that domestic brands can deliver happiness while also exporting soft cultural values abroad and building national pride. The success of Labubu is a prime example of China building its soft power in a highly acceptable and enjoyable way.
Looking ahead, we expect several sectors beyond food and beverage to benefit from this policy shift. Entertainment and gaming — powered by AI and what the government calls “new productive forces” — represent massive industries. That said, the government is likely to try to carefully balance psychological health with the challenges of online addiction and phenomena like AI boyfriends and girlfriends.
We also anticipate growth in experiential services like tourism, leisure, fashion, and the rising pet economy. Much like the therapy dog trend in the U.S., the increasing pet-friendliness of Chinese coffee and tea shops highlights a new focus on psychological health. Ultimately, it’s refreshing to see the government — which previously prioritized catching up with the West through raw manufacturing capacity — finally caring about the emotional and spiritual needs of its people as they seek contentment with Chinese characteristics.
China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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