Rebecca Lewis, Partner and Co-CEO
In January, Vatsal, our partner in India, and I had the privilege of joining Gordon on his latest research trip to China. In the span of just one generation, China has experienced a stunning transformation, with its infrastructure and real estate developments serving as powerful symbols of rapid growth and modernization. From sprawling malls and sleek apartments to expansive highways, these developments have dramatically reshaped the landscape, raising living standards and driving economic expansion. While the conversation often centers around challenges such as overcapacity and the potential long-term consequences of rapid development, the human stories behind these transformations are just as compelling.
Consider the millions of people who have been lifted out of poverty during this period of growth. Today, millions live in modern homes, travel seamlessly across cities, and shop in bustling, vibrant malls. Even amid a downcycle, there is a striking sense of resilience and acceptance among the population. Conversations throughout our trip reflected this attitude, with people acknowledging the realities of the situation, understanding that this is a moment to endure, and accepting the cyclical nature of the economy—there was little lamentation over lost opportunities.
Affordability is another key factor in China’s widespread appeal. A chic hotel in the heart of Chengdu, like the Atour, costs around USD 100 per night, while a luxurious BYD seven-seater ride can be yours for just USD 12 for a 30-minute journey. Even a bag full of delicious snacks from the Max chain of specialty stores costs a mere USD 1.50. This level of affordability contributes to the daily comfort and enjoyment that many people now experience.
“Max,” a popular snack retailer, epitomizes the speed of growth within China’s market. In just five years, the company has opened an astounding 13,000 stores. Vatsal noted that such rapid scaling is almost unimaginable in markets like India, where infrastructure is less developed and market conditions vary dramatically. However, this rapid expansion comes with its own challenges: business lifecycles in China are often compressed to just 5-7 years. For instance, Max stores have seen payback periods extend from an impressive 10 months to nearly 2 years as market dynamics evolve.
Consumers in China exhibit an extraordinary openness to new products and brands, constantly seeking innovation. They’re quick to embrace fresh offerings, driven by a mix of attractive payment options, eCommerce advancements, and economic pressures that shift spending patterns, particularly in categories like snacks, food service, apparel, and travel. In a notable contrast to subscription models common in developed markets, Chinese consumers prefer to make active purchases, even for products like pet food, rather than committing to ongoing subscriptions.
This presents an intriguing question for consumer investors: why are there so few enduring brands in China? Is it due to the rapid pace of product lifecycles and the challenge companies face in building long-term brand loyalty? Or is it the culture of constant experimentation, where consumers are drawn to the excitement of trying new products instead of sticking with established brands? This contrasts sharply with India, where brands can build lasting legacies, fostering consumer loyalty even in less branded categories like pipes, honey, bags, and oils.
The difference may stem from disposable income. In India, lower income levels often make consumers more risk-averse, wary of the financial repercussions of failed experiments. Moreover, the overall quality of non-branded alternatives in India can sometimes discourage experimentation.
Meanwhile, the few enduring brands in China tend to be state-owned enterprises (SOEs) such as Moutai and Foshan Haitian. These monopolistic leaders enjoy state protection, thriving within a consumer environment that is otherwise increasingly capitalist.
Our journey through China was a truly enlightening experience. The warmth and hospitality of the people were matched only by the remarkable innovation evident in every corner of daily life. The infrastructure improvements and the quality of life were beyond our expectations, dispelling many of the misconceptions we had held prior to our visit.
To put China’s infrastructural leap into perspective, consider this: over the past two decades, the country has invested trillions of dollars into its infrastructure. It now boasts more than 3,000 miles of high-speed rail lines— the largest network in the world. Urban areas have seen the construction of 40,000 kilometers of expressways, and cities like Chengdu have developed modern urban amenities at an extraordinary pace.
Reflecting on this transformative journey, it becomes abundantly clear that China’s infrastructure boom is not just about roads and buildings—it represents a fundamental shift in the everyday lives of its people. It’s a testament to resilience, ingenuity, and a forward-looking society poised for continued growth and innovation.
