Archive for ‘Economics’


Stopping bridge collapses | The Economist

ON AUGUST 2nd a century-old bridge carrying the road from Mumbai to Goa over the Savitri river collapsed (see picture), killing at least 20 people.

The probable cause was that the river, swollen by monsoon rains, had scoured away the foundations of the bridge’s piers. Such erosion-induced collapses are not peculiar to India. In 2009 the Malahide viaduct, north of Dublin, failed similarly just after a train had crossed it. This was despite its having been inspected and pronounced safe a few days earlier. In America, meanwhile, foundation-scouring is reckoned to be the leading reason for bridge failure. Half of the 500 collapses that happened there between 1989 and 2000 were caused by it.

If detected early enough, foundation-scouring is easy to fix. Dumping rubble, known as riprap, into the water around a bridge’s piers stabilises the riverbed they are sunk into. But until now such detection has involved the deployment of teams of divers, which is expensive. Hence a search for technology which can substitute for the men and women in the wetsuits.

Stopping bridge collapses

Ken Loh of the University of California, San Diego, thinks he has an answer. He has created flexible rods that, when inserted into a riverbed, monitor erosion quite simply. The exposed portion of a rod undulates in the water. Piezoelectric polymers in the rod convert this motion into electricity, with the frequency of the undulation (and therefore of the electric current) indicating the length of the rod’s exposed part. As the bed erodes, this portion gets longer and the frequency drops. That tells the riprap tippers when to get busy.

Genda Chen of Missouri University of Science and Technology has a more unusual proposal: to throw magnetic “rocks” (artificial boulders with magnets embedded inside them) into the river. These rocks roll around in the riverbed until they settle in dips in the sediment, which are generally places where erosion is at its greatest. Sensors fitted to a bridge’s piers then estimate the amount of scouring, and where it is, from the strength and direction of the magnetic field they detect.Some researchers, like Luke Prendergast of Delft University of Technology in the Netherlands, think installing sensors below the waterline like this is too expensive—and is also unreliable. He worries that heavy storms will wash them away when they are needed most. He has focused instead on monitoring the part of the bridge above the water, using accelerometers of the sort found in most smartphones. All bridges vibrate, as traffic bumps over them or winds rattle their decks. If their foundations begin to erode, the pattern of these vibrations will change, much as the pitch of a tuning fork varies with its length. Accelerometers, Dr Prendergast suggests, could monitor such changes and forewarn of problems.

Accelerometers are not the only way to measure vibrations, though. David Mascareñas of Los Alamos National Laboratory videos them. He then uses a computer algorithm to analyse the resulting footage and determine a structure’s properties, even if the vibrations recorded have an amplitude of less than a millimetre.

Whether methods that study vibrations in these ways can detect problems early enough to prevent collapses remains to be seen. Branko Glisic of Princeton University, by contrast, thinks the best approach is to detect threatening cracks directly. He has created special sensor sheets, designed to be pasted onto the sides of a bridge. Wires within a sheet elongate if a crack opens underneath them. That changes their resistance. The arrangement of the wires means such changes in resistance give away precisely where the crack is.

If methods such as these can be made to work in practice, then it will, more often, be possible to send the rip rappers in at the appropriate moment to save a bridge that is otherwise sound. And, for those bridges that are not, timely warning will be provided that a crossing needs to be closed before someone is killed traversing it.

Source: Stopping bridge collapses | The Economist


India and Russia to sign air defence deal – BBC News

Russia and India are expected to sign a deal on Saturday for the delivery of an advanced air defence system to Delhi, a Kremlin official has said.

The S-400 missiles are Moscow’s most sophisticated aircraft defence system.Yuri Ushakov said the agreement would be signed at a summit in Goa where President Vladimir Putin will hold talks with Indian PM Narendra Modi.

India is also hosting a Brics summit in Goa this weekend involving Brazil, Russia, India, China and South Africa.

“An agreement on the delivery of S-400 ‘Triumph’ anti-missile defence systems and other deals will be signed as a result of the talks,” Russian news agencies quoted Mr Ushakov as saying.

Russia’s missiles send robust signal

The Kremlin earlier this week said the talks with Mr Modi would focus on “a wide range of matters of bilateral relations, especially trade and economic ties”.

The S-400 surface-to-air missiles have been deployed to Syria, where Russian forces have been operating in support of the government of President Bashar al-Assad.Russia and India were close allies during the Cold War, but recently the relationship has become more complex.Talks have been held annually since 2000 and hosted alternately by Moscow and Delhi.

Source: India and Russia to sign air defence deal – BBC News


Infosys cuts annual revenue target for 2nd time as U.S. election, Brexit weigh | Reuters

India’s second-largest software services exporter Infosys Ltd cut its fiscal-year revenue growth target for the second time in three months on an uncertain business outlook, sending its shares tumbling more than 5 percent.

Reporting a 6.1 percent rise in second-quarter net profit, Infosys said on Friday it now expected revenue to grow between 8 percent and 9 percent in constant currency terms in the fiscal year to March 31, 2017. Its previous revenue growth target, issued in July, was 10.5-12 percent, already lowered from the up to 13.5 percent it said it expected in April.India’s more-than-$150 billion software services sector depends on North America and Europe for the majority of its revenue. The impending U.S. presidential election and the implications of Britain’s ‘Brexit‘ move to exit the European Union have both weighed on spending by western clients.

Infosys had warned in August it was seeing some “softness” in business after the June Brexit vote in Britain.

Chief Executive Vishal Sikka said in a statement on Friday the revision took into consideration “our performance in first half of the year and the near-term uncertain business outlook”.

After falling as much as 5.3 percent after the guidance cut was announced, Infosys shares were trading 2.6 percent down at 0453 GMT in a Mumbai market that was little changed.

For its fiscal second quarter to Sept. 30, its consolidated net profit rose 6.1 percent from a year earlier to 36.06 billion rupees ($541.51 million), ahead of analysts’ estimates of 35.26 billion rupees. Revenue rose 10.7 percent to 173.1 billion rupees.The company said on Friday it added 78 clients during the three months to September, taking its total number of active clients to 1,136.

($1 = 66.5919 Indian rupees)

Source: Infosys cuts annual revenue target for 2nd time as U.S. election, Brexit weigh | Reuters


China tops US in numbers of billionaires – BBC News

Property magnate Wang Jianlin of Dalian Wanda tops the list of 594 billionaires in the country, ahead of 535 billionaires in the US.

Alibaba‘s Jack Ma was second, with his wealth having risen 41% from last year.

The annual list is compiled by Shanghai publishers Hurun and often compared to the Forbes list in the US.The Hurun Report’s rich list is one of the most closely-watched and accurate assessments of wealth in China. The annual report has been published for the past 18 years.

Earlier this year, the publisher released a separate, global list, showing that the number of billionaires in China outnumbered those in the US for the first time.

However, none of China’s super-rich make it into the global top 20.

Global reach

At the top of the China rich list is Wang Jianlin, who sits on a personal fortune of $32.1bn (£26.4bn).

His company Dalian Wanda has made headlines throughout the year with a number of high profile forays into the US movie markets. It has taken over Legendary Pictures, as well as stepping into US and UK cinema chains and striking an alliance with Sony Pictures.

Alibaba’s Jack Ma is a close second with $30.6bn, and Pony Ma of internet and online gaming giant Tencent comes third with $24.6bn.

Image copyright REUTERS

The biggest increase came from Yao Zhengua of investment and real estate firm Baoneng Group, whose wealth jumped by 820% to $17.2bn, putting him in fourth position.

Hurun chairman Rupert Hoogewerf said Mr Yao’s rise illustrated a shift in China’s maturing economy.

“Yao’s financial investment model represents the new wave of wealth creation in China,” he explained. “The first money made in China 20 years ago came from trading, followed by manufacturing, real estate, IT, and today it is about using the capital markets for financial investments.

“Robin Li and Melissa Ma of search engine Baidu have a fortune of $14.7bn, ranked eighth while founder of smartphone makers Xiaomi, Lei Jun, dropped out of the top 10 to number 14 as competition in China’s smartphone market intensified.

Most of China’s billionaires live in Beijing, followed by Shenzhen, Shanghai and Hangzhou.

Globally, the Forbes rich list is topped by Microsoft founder Bill Gates with $75bn, followed by Amancio Ortega of Zara and legendary investor Warren Buffett.

Source: China tops US in numbers of billionaires – BBC News


What’s a slum? In India, Dharavi’s thriving informal economy defies the label | Reuters

Malik Abdullah’s plastic recycling business in Dharavi, the sprawling slum in Mumbai that is among the largest in Asia, has survived fire, building collapses, and the criminal underworld for decades. Now, it is threatened by development.

For 35 years, Abdullah has carried on the business built by his father, pulverising used plastic cans and bottles into pellets, then selling them to factories to refashion.

Thousands of small businesses like his thrive in Dharavi, creating an informal economy with an annual turnover of $1 billion by some estimates.

Now, plans to replace the ramshackle workshops and decrepit homes with office blocks and high-rise apartments threaten the businesses that employ thousands of its 1 million residents.

“The city doesn’t care about the businesses here, which are our livelihood,” said Abdullah, 52, standing in an alley crammed with towering stacks of plastic containers.

“This is where we live, this is where we work. Where will we go if they only build flats and offices?” he said.

During the past two decades, there have been several attempts to develop Dharavi, which sprawls over 240 hectares (590 acres). However, residents have opposed many of them, saying they do not consider their interests.

Real estate in Mumbai, India‘s financial hub, is among the most expensive in the world. The contrast between rich and poor is stark, and about 60 percent of the city’s population of more than 18 million lives in slums.

Dharavi has always been a magnet for migrants from across India. Many have lived there for decades, their one-room tenements and low-rise homes dwarfed by the gleaming glass and chrome office towers and luxury hotels that dot the city.

Amid Dharavi’s narrow alleys, open drains and canopies of electric cables, migrants who came in search of better economic opportunities have created a community of schools, temples, mosques, restaurants, tailors and mobile phone shops.

Tens of thousands work as potters, leather tanners, weavers, soap makers, and in Dharavi’s massive recycling industry.

Most homes double up as work spaces, the whirr of sewing machines, the clang of metal and the pungent odour of spices mingling with the call for prayer and the putrid smell of trash.

“People think of slums as places of static despair as depicted in films such as ‘Slumdog Millionaire‘,” said Sanjeev Sanyal, an economist and writer, referring to the Academy Award-winning movie that exposed the gritty underbelly of Dharavi.

“If one looks past the open drains and plastic sheets, one will see that slums are ecosystems buzzing with activity… Creating neat low-income housing estates will not work unless they allow for many of the messy economic and social activities that thrive in slums,” he said.


Once a small fishing village, Dharavi was notorious as a den of crime in the 1970s and ’80s. Following a massive crackdown, violent crime is rare and Dharavi has featured in movies, art projects and a Harvard Business School case study.

Fed by two suburban railway lines and perilously close to the Mumbai airport, Dharavi has lured developers, too.

Recent plans by city officials envisaged private developers clearing the area and building high-rise flats in which each eligible family gets a free 225 sq ft (21 sq metres) unit. The developer in turn gets rights to build commercial space to rent.

Dozens of such housing blocks have been built over the years, falling into disrepair as facilities were not upgraded.

What these buildings also lack is room for work. The squat tenements are perfectly suited for businesses, with living and sleeping spaces sitting atop work spaces, workers spilling into the alleys, and material stacked outside and on roof tops.

In Kumbharwada, the potter’s colony, where migrants from neighbouring Gujarat state make earthen water pots and lamps, potters’ wheels can be seen through open doorways, while ready pots are stacked in the alleys awaiting pickup.

The colony is abuzz ahead of the Dussehra and Diwali festivals, when decorated pots and lamps are in demand.

With small televisions turned on low, women sit cross-legged on the floor in their homes, painting motifs in red, yellow and green, and gluing on sequins and shiny bits of mica.

Down another alley, a group of women chat and braid leather strips for belts and bags on the stoop of a home.

“We want new flats, but they are small,” said Sharada Tape, who earns about 100 rupees ($1.50) a day.

“There are no spaces like this where we can all sit and work. It will be difficult, but we need the money,” she said.


City officials last month submitted a new 250 billion rupee ($3.7 billion) redevelopment plan to Maharashtra state for approval after previous plans failed to attract bidders.

The new plan, a public-private partnership, has ample commercial space for businesses, but only for the “formal, legitimate” ones, said Debashish Chakrabarty, head of the Dharavi Redevelopment Authority.

“All the licensed businesses will have space under the plan. It will be better, cleaner than what they have now,” he said.

It is this narrow definition of what’s legal and permissible that is the biggest challenge, not just to recognising Dharavi’s businesses, but also determining Dharavi’s fate, said Rahul Srivastava, a founder of the Institute of Urbanology in Mumbai.

“The biggest impediment to the improvement of many of these settlements is the misconception that they are illegitimate, because residents don’t own the land they occupy,” he said.

“Can settlements which are home to fifth-generation migrants be called ‘informal’? We need to transform our perception of these neighbourhoods,” he said.

Across the country, plans to build modern Smart Cities will force tens of thousands of people from their slum homes as planners spruce up central business districts and build metro train lines, activists say.

Campaigners say until authorities give Dharavi residents more power and recognise the vital role of their businesses, any redevelopment plan is destined to fail.

“If we don’t have these small enterprises, it wouldn’t be Dharavi,” said Jockin Arputham, president of the National Slum Dwellers’ Federation in Mumbai.

“This is a people-sponsored economic zone, and the redevelopment should be around the economic zone. It is a township, not a slum, and it should be treated as one,” he said.

Abdullah, the plastic recycler, is reconciled to his fate.

“We want development. We also want to keep our businesses,” he said.

“But we have to be prepared for any eventuality. We are not owners of the land, so we may have to shut down,” he said.

($1 = 66.5075 Indian rupees)

Source: What’s a slum? In India, Dharavi’s thriving informal economy defies the label | Reuters


Diaspora Dollars Dwindle: Indian Remittance Growth Slips to 12-Year Low – India Real Time – WSJ

India’s global army of expatriates–which does everything from writing software in Silicon Valley to building skyscrapers in in Qatar–is the world’s most generous when it comes to number of dollars sent home, but this year they have become a bit stingy.

Recently released World Bank estimates predict the Desi diaspora will send home $65.45 billion this year. While that is just above remittances into China ($65.17 billion) and tens of billions beyond any other country, it is a 5% decline from last year.

The last time India saw a bigger slide in remittances was back in 2004 when remittances fell 11%.

Globally, remittances are expected to edge up about 1% this year, the World Bank predicted, so why is India underperforming?

The main problem is that many of the Gulf Cooperation Council countries have been struggling with the decline in oil prices. That has meant they are hiring fewer Indians, providing fewer perks to their international employees and in some countries even restricting the number of foreigners that can be hired.

“This year the South Asia region would see a decline of 2.3% in remittances to the region due mainly to the impact of declining oil prices and labor market nationalization policies on remittances from GCC countries,” the report said. “Moving forward remittance growth in the region is expected to remain subdued.”

Some parts of the southern state of Kerala and other regions in India that depend on remittances are already starting to feel the pain from the decline in oil riches.

The World Bank expects remittance growth to return, expanding 2.2% in South Asia next year and 2.3% the year after that. Globally remittance growth will likely be stuck below 4% for years, the bank said.

“Remittances continue to be an important component of the global economy, surpassing international aid. However this ‘new normal’ of weak growth in remittances could present challenges for millions of families that rely heavily on these flows. This, in turn, can seriously impact the economies of many countries around the world bringing on a new set of challenges to economic growth,” said Augusto Lopez-Claros, Director of the World Bank’s Global Indicators Group.

Source: Diaspora Dollars Dwindle: Indian Remittance Growth Slips to 12-Year Low – India Real Time – WSJ


Building Collapse Illustrates Peril of Do-It-Yourself Construction – China Real Time Report – WSJ

A fatal building collapse in southern China has highlighted a practice that more than once has produced death traps: structures built with little oversight by villagers on former farmland.

Such slapped-together buildings have tended to grow even more precarious as they age and as extra floors are added.

Four six-story buildings in a suburban area of Wenzhou, a city on China’s southern coast, collapsed Monday morning, claiming at least 22 lives, according to the state-run Xinhua News Agency, which cited local authorities. Six survivors were pulled from the building before the rescue was called off, Xinhua said.

The buildings were close to industrial parks of Wenzhou, a hub for light manufacturing including shoemaking, and most residents were migrant workers.The buildings were several decades old and erected by villagers, according to an article by the Wenzhou Daily that the local government reposted on its official website Tuesday. It said investigations were under way but an initial analysis showed that the collapse was likely caused by the buildings’ low quality and shaky foundation, a problem made worse by continuous rainfall in the past few days.

It used to be common practice in the 1980s and 1990s for residents outside China’s urban area to build houses with their own hands, often on what had been farmland. Over the years, floors were added without approval, leaving tottering buildings crumbling under the extra weight.

As cities have grown to incorporate such areas, local governments have tried to get rid of these “towns within cities,” tearing down the aging and shoddily built structures. The Wenzhou government had targeted much of the complex of the recent collapse for demolition, some of which had already started.

It wasn’t the first collapse of villager-built housing. Two years ago, a building under construction by local farmers in Xian in western China collapsed, killing five people.

Some online commenters pointed out that photos of the buildings involved show that more floors had been added to the original construction. The state-run newspaper Beijing News quoted a Wenzhou resident as saying that it was common for self-built buildings in the area to have additional floors.

The practice of adding floors has sometimes been a way for the owners of buildings targeted for demolition to extract more compensation from the government, which bases amounts to pay out to residents on the size of the living areas.

Another building collapse in Xian in 2011, which claimed seven lives, was caused by illegal additions the building’s owner had made to get more compensation, according to the local government. The owner was detained by the local police.

That tragedy came months after the Xian government rolled out new regulations to forbid compensation for illegal additions to a building. The local government said at the time that more than 50 cases of “self-built” building collapses had caused 69 deaths since 2007.

It was unclear whether the owners of the collapsed buildings in Wenzhou, who weren’t identified by the local government, will be held legally responsible for the casualties.

The Wenzhou collapse prompted calls for more regulation. “If relevant departments are still indifferent in face of self-built houses in such a disastrous state,” read one commentary by Beijing News on Tuesday, “then similar tragedies will be repeated.”

Source: Building Collapse Illustrates Peril of Do-It-Yourself Construction – China Real Time Report – WSJ


Chinese consumers: Revisiting our predictions | McKinsey & Company

In 2011, we tried our hand at predicting the ways in which, in the decade to come, Chinese consumers would change their preferences and behaviors.

This article takes stock of those predictions.

Why check in now? One reason is we’re about halfway to 2020. Another is a comprehensive new McKinsey survey, which follows nearly ten years of previous research that includes interviews with more than 60,000 people in upward of 60 cities in China. Along the way, we’ve bolstered our own team’s data on consumer preferences and behavior with a number of complementary analyses and models, including McKinsey’s macroeconomic and demographic studies of Chinese urbanization and income development. We’ve also interviewed academics to draw out the major trends shaping the course of the Chinese economy, such as its rapidly aging population, the growing independence of women in society, and the postponement of critical life milestones, such as marrying and having children.

We’ve done it all with the abiding belief that companies getting ahead of the trends can build their brands and offerings to fit a rapidly evolving set of consumer needs in China. Deeper and more nuanced understanding of Chinese consumers can help reveal fresh opportunities—for new entrants and incumbents alike—and signal those areas where established players may need to be more wary.

Looking back nearly five years on, it is plain that Chinese consumers are evolving along many, though not all, of the lines we’d predicted. While geographic differences persist, Chinese consumers are, on the whole, more individualistic, more willing to pay for nonnecessities and discretionary items, more brand loyal, and more willing to trade up to more expensive purchases—even as their hallmark pragmatism endures.

Evolving geographic differences

Much of the research we described five years ago highlighted the vast differences we found among consumers in China’s various cities and regions. Just as it was then, generalizing about Chinese consumers continues to be almost as difficult (and maybe as foolish) as it is to generalize about European consumers.

We predicted these differences would remain—and even grow more significant, especially in the consumption patterns and tastes that relate to discretionary items. To help companies better tailor their go-to-market approach, we grouped most cities in China into clusters based on their similarities, including their geographic proximity and the transportation infrastructure that connects them.

As the economic structure in each of the 22 biggest city clusters has evolved—and as each of them has been affected differently by the recent slowdown of China’s economy—significant differences, for instance, in consumer confidence, do indeed persist between these clusters.

For instance, some 70 percent of consumers in the Fuzhou–Xiamen city cluster, which lies on the coast across from Taiwan, said in our latest report that they are confident their income will significantly increase over the next five years. In that same report, the Byland–Shandong city cluster, which lies on the coast between Beijing and Shanghai, was comparatively pessimistic, with only 33 percent of its consumers expressing such confidence.

Furthermore, when our latest survey compared the consumers in the Shanghai area to those around Beijing and Hangzhou, certain spending attitudes also showed marked differences. For example, brand loyalty increased much faster in Shanghai (24 percent increase in three years versus just 7 percent in Beijing and 9 percent in Hangzhou), as did the willingness to pay for better or healthier products.

Growing discretionary spending

Despite geographic differences, there are broad similarities among Chinese consumers. These mirror the general trends economists have found among consumers around the world as economies develop. The general tendency is for consumers, as they earn more, to spend a lower percentage of their income on food, a little more on healthcare, and even more on travel and transportation, as well as on recreational activities. It was no great stretch then, in our report five years ago, to predict a significant shift in consumption from necessities and seminecessities into discretionary categories.

Sure enough, our new survey shows Chinese consumers following the anticipated pattern. When we asked how they plan to increase spending as their income increases, dramatically fewer consumers said they will increase it on food (46 percent in the latest survey, compared to the 76 percent who said they would do so three years earlier).

Responses trended slightly up for healthcare products (from 16 percent to 17 percent), and increased for travel (from 14 percent to 23 percent) and leisure (from 17 percent to 25 percent).

Aspirational trading up

In our previous predictions, we also argued that as the income of Chinese consumers grew, they would aspire to improve their quality of life by not only spending more on discretionary items, but also by shifting their spending to more expensive items in the same categories.

In necessity categories such as food, for example, we predicted consumers would be willing to spend more for healthier versions of the same products—for instance, that olive oil would grow much faster than less healthy (and less expensive) oils. In semi-necessity categories like apparel, we predicted people would buy more special-occasion and premium brands. We anticipated that the strongest beneficiaries of these changes would be in the more discretionary and aspirational categories, such as skincare and automotive. So what has happened so far?

Premium categories have really accelerated. Comparing cosmetics purchases between 2011 and 2015, 44 percent of consumers have traded up their purchases, compared with 4 percent who traded down. Even for rice, 25 percent of consumers traded up versus 3 percent who traded down. Automotive was not included in our survey, but sales data from the Traffic Management Bureau of the Ministry of Public Security in China suggest significant trading up. In 2011, 51 percent of the renminbi spent on cars by Chinese consumers were for autos cheaper than 100,000 RMB. These sales accounted for only 43 percent of the market. Cars selling for 100,000 to 250,000 RMB grew twice as fast with a compound annual growth rate (CAGR) of 19 percent versus 9 percent. And cars with price tags between 250,000 and 400,000 RMB grew the fastest of all, with 23 percent CAGR.

Emerging senior market

In 2011, we observed a big generational difference between consumers in their late 50s and early 60s, who were very conservative spenders, and all of the age cohorts younger than them.

We predicted that by 2020, as the needs of consumers over the age of 55 changed along with their economic confidence, their spending habits would follow suit, making this age group worth pursuing by consumer-product companies. If anything, we underestimated the speed and force with which this trend would unfold.

By 2015, the 55–65 age group had started to shift even faster than the rest of the population. For example, 52 percent of the people in this age group showed a preference for premium products, compared to just 32 percent in 2012. They leaped from being the most conservative age group to the one most likely to trade up. Similarly, the preference for famous brand names among these older buyers jumped by more than 20 percent, fully closing the previous difference among cohorts. As Exhibit 1 shows, these older consumers don’t shy away from indulgences, and they have grown more likely to use the Internet to research their purchases, even if they still do so less often than younger consumers.

Chinese consumers in their late 50s and early 60s are shifting their buying behavior.

That said, the upper age group has remained more pragmatic and cost conscious than any other age group, as we discuss in the following section.

The still-pragmatic consumer

Back in 2011, even as we were predicting changes in the behavior and preferences of Chinese consumers, we also saw ways in which their essential pragmatism would likely stay the same. For instance, we anticipated that impulse buying would remain lower than in other countries and that value for money would continue to be an important consideration when choosing products and services. Interestingly, Chinese consumers across all age groups have, in some ways, become even more pragmatic. They’re now even more likely to compare prices across multiple stores, to be more price aware, and to stock up on promotions. That said, they’re now willing to buy more often on impulse (Exhibit 2).

The pragmatism of Chinese consumers has increased slightly across all age groups.

The individual consumer

We also predicted that as Chinese consumers aspire to a better life and trade up their purchases, they would become more discerning and gradually more individualistic. This would lead, for example, to a shift toward more healthy choices, more user-friendly products, and products and brands that better fit their personality. This could be a big opportunity for niche brands—and a threat to the mass-market brands that had won big in previous years by using scale and ubiquitous availability, supported by the trust gained by heavy advertising.

Our latest research certainly shows a decrease in consumption in categories deemed less healthy and a willingness to spend significantly more on health and more environmentally conscious categories. It also shows consumers are more likely to spend more to indulge themselves and more likely to try new technology. While their consumption choices have become more individualistic, though, it is important to note that family values continue to be at the top of their priorities (Exhibit 3).

Chinese consumers’ needs and values continue to center around family.

One area our predictions missed, however, was by anticipating that consumers, as they became more individualistic in their choices, might focus less on basic product reliability and safety. Perhaps in part because of a number of more recent food scandals, however, consumers seemed more concerned with these issues in 2015 than they were before.

The increasingly loyal consumer

When our team first started researching Chinese consumers, nearly ten years ago, many of us were surprised by their fickle attitude toward brands. Fewer than half of consumers tended to stick with their favorite brands, compared, for example, with almost three quarters of US consumers.

As we debated this tendency while making our predictions, we wondered if, in the clash between pragmatism and individualism, brand loyalty would stay low, increase, or even decline. Ultimately, we decided it would increase as the emotional benefits of brands became more important to consumers and as increased choice and availability of branded products (online and off) would allow consumers to optimize for price and convenience without changing choices too often.

Our recent research confirmed the changes we anticipated. Consumers are now significantly less likely to buy a brand that is not already among their favorites, continuing the upward trend we observed in 2011 (Exhibit 4).

Chinese consumers are increasingly brand loyal and focused on just a few brands.

The modern shopper

Our 2011 predictions were bullish on e-commerce, predicting that Chinese consumers would adapt their channel choices even faster than has occurred in developed markets.

We estimated that by 2020, online consumer-electronics purchases would jump to 40 percent, from about 10 percent. More mainstream categories would rise to 15 percent, and some categories, such as groceries (now below 1 percent), could reach about 10 percent. These changes are occurring even as the enduring pragmatism and diligence of the Chinese consumer continue to be in place. Our latest research shows that consumers of all age groups are much more likely to collect information online, even on fast-moving consumer goods, than they were just three years ago.

In 2015, online food and beverages sales (excluding fresh) reached 7.2 percent: reaching our predicted 10 percent in five years looks very likely. The online share of consumer-electronic purchases, meanwhile, has reached a whopping 39 percent in 2015, and it now looks possible that by 2020 it will be about 50 percent of overall sales.

Looking from today’s perspective at our 2011 predictions, it is impressive to see the evolution of Chinese consumers—even as their most characteristic traits endure. Certainly, we’ll check in on their progress as we get ever closer to the year 2020. Making predictions may be difficult, especially about the future—as US Baseball Hall of Famer Yogi Berra famously observed. But they can still provide valuable foresight for executives.

Source: Chinese consumers: Revisiting our predictions | McKinsey & Company


How India’s Taste for Soy Oil Has Fueled a Surge in Imports – India Real Time – WSJ

Indians are acquiring a strong taste for soybean oil thanks to lower prices, fueling a surge in imports at a helpful time for a global market struggling with a glut of the commodity.

India’s imports of soybean oil have quadrupled in the last five years to more than 4 million metric tons this year, according to data compiled by the country’s vegetable oils industry body. India’s soybean oil imports are expected to rise over the next 10 years by as much as 40%, the U.S. Department of Agriculture estimated in May.

Soybean oil, produced by crushing soybeans, is used in everything from cooking oil to cookies and lipstick.

In India, they are favored for cooking samosas, dosas and curries, but the relatively high price of soy oil was a deterrent for many consumers in the country. India’s gross domestic product per capita grew 6.9% from a year earlier to $6,200 in 2015, but remained much lower than the U.S. with GDP per capita of $55,800, according to U.S. estimates.

India dethroned China two years ago as the world’s largest importer of soy oil. Some Indian consumers who have switched to soy oil cited the steep drop in prices—35% since 2012. Prices of palm oil, its main rival used widely in restaurants and by poorer Indians, have mostly been moving sideways.

“Demand from India will certainly play a role in absorbing excess soy-oil supplies,” said Vamsi Krishna Kona, a trader at Inditrade Derivatives & Commodities.

Source: How India’s Taste for Soy Oil Has Fueled a Surge in Imports – India Real Time – WSJ


Keeping pure and true | The Economist

CHINA’S cities abound with restaurants and food stalls catering to Muslims as well as to the many other Chinese who relish the distinctive cuisines for which the country’s Muslims are renowned.

So popular are kebabs cooked by Muslim Uighurs on the streets of Beijing that the city banned outdoor grills in 2014 in order to reduce smoke, which officials said was exacerbating the capital’s notorious smog (the air today is hardly less noxious).

Often such food is claimed to be qing zhen, meaning “pure and true”, or halal, prepared according to traditional Islamic regulations. But who can tell? Last year angry Muslims besieged a halal bakery in Xining, the capital of Qinghai province, after pork sausages were found in the shop’s delivery van. There have been several scandals in recent years involving rat meat or pork being sold as lamb. These have spread Muslim mistrust of domestically produced halal products.

In response, some local governments have introduced regulations requiring food purporting to be halal to be just that (though not going into detail of what halal means, such as the slaughter of animals with a knife by a Muslim). Earlier this year, however, the national legislature suspended its work on a bill that would apply such stipulations countrywide.

There is much demand for one. Local rules are often poorly enforced. Advocates of a national law say a lack of unified standards is hampering exports to Muslim countries. According to Wang Guoliang of the Islamic Association of China, the country’s halal food industry makes up a negligible 0.1% of the global market.

The government began drafting a national halal law in 2002. But Muslim communities in China have varying definitions of the term. Work on the bill was slow. Each year, during the legislature’s annual session in March, Muslim delegates called for faster progress. But there were opponents, too. Some scholars argued that the government should not regulate on matters relating to religious faith. Others said that by giving in to the Muslims’ demands, China would encourage them to press for more concessions and ultimately form their own enclaves run by sharia.

Such views may have given pause to China’s leaders. In April, at a high-level meeting on religious affairs, President Xi Jinping said religion should be prevented from interfering with the law. That month Wang Zhengwei, a Muslim official who had been pushing for halal legislation, was removed from his post as the head of the State Ethnic Affairs Commission.

Also in April, the Communist Party chief of Ningxia urged officials to “sharpen [their] vigilance” against the use of halal labels on products such as toilet paper, toothpaste and cosmetics. And the government of Qinghai province ordered the inspection of Muslim-only toilets and hospital rooms, as well as shops catering to Muslims, to make sure that halal symbols were being used only on food. Xinjiang, the far-western region that is home to the Uighurs, recently introduced an anti-terrorism law threatening punishment of those who “overextend” halal rules. Officials clearly worry that those who do so might be the same sort of people who embrace jihad.

Ismael An, a Muslim writer, says this is overreacting. “Supporters of the halal law are not the so-called extremists, because real extremists don’t make demands through legislation,” he says. On the internet, however, a small but vocal group of Islamophobes has been calling for a boycott of halal-certified products. They say the price of such goods factors in payments to Islamic groups that grant the certificates—they do not want to give the religion even indirect support. Ironically, it is the non-Muslim love of Muslim food that will ensure the campaign will not succeed.

Source: Keeping pure and true | The Economist

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