2023 Calendar Week 51

1.China Overtakes U.S. as Global Coffee Shop Leader

China has now taken the lead as the global epicenter for coffee shops, surpassing the United States in sheer numbers. According to a recent report from World Coffee Portal, a research organization under Allegra Group, China has experienced an impressive 58% surge in branded coffee shops in the past year, boasting a total of nearly 50,000 establishments. The main catalysts behind this growth are the takeaway-focused chains, Luckin Coffee and Cotti Coffee, which have collectively introduced over 11,000 new outlets.

Despite the increasingly competitive landscape, China’s coffee market delivered positive results in 2022. The 2023 China Ready-Made Tea and Coffee Industry Whitepaper by Ele.me predicts that the coffee market will surpass the tea beverage market, reaching RMB 119.1 billion in size. A report from China Merchants Securities indicates that the number of coffee consumers in China exceeded 380 million last year, with a penetration rate of 26.7%. Additionally, the per capita coffee consumption rose by 28.4% year-on-year.

However, it would be premature to declare China’s coffee market as mature. In 2022, the average per capita coffee consumption was only 11.3 cups, significantly lower than Japan’s 176 cups and the United States’ 313 cups. As the price war becomes more normalized, coffee is expected to become more accessible, fostering further growth in the market.

The 2023 China Urban Coffee Development Report highlights the continuous growth of online sales for instant and ready-to-drink coffee in China over the past three years. Although instant coffee dominates sales, the market remains fragmented, with the top 10 brands accounting for just 52%, indicating substantial potential for new entrants

Image Source: World Coffee Portal

Amongst all cities, Shanghai emerges as China’s coffee capital, boasting over 8,500 cafes – a number surpassing global counterparts like New York, London, and Tokyo. The city exhibits an average of 3.45 cafes per 10,000 people and 1.35 cafes per square kilometer. Shenzhen, renowned as the ‘City of Coffee Potential,’ leads in the number of coffee-related enterprises in China, with a youthful consumer base contributing to the country’s highest coffee density.

2.East Buy Surges Over 14% at Opening, Dong Yuhui Appointed as ‘Senior Partner’

After days of being the hottest debate in China, East Buy (1797.HK) dismissed Sun Dongxu from his CEO position and appointed Yu Minhong, the founder and chairman of New Oriental, East Buy’s parent company, as CEO. On December 18th, East Buy’s stock price surged by 14.29% to HK$30 at the opening of the Hong Kong stock market. Dong Yuhui was promoted to “Senior Partner” on the night of December 17th. This shift comes in the wake of a significant drop in East Buy’s live streaming room fans by over two million due to the “Little Composition” incident

Stock Trend of East Buy from September 27th to December 18th

Addressing Dong Yuhui’s future role, Yu Minhong acknowledged perceived unfairness on the original East Buy platform, expressing limitations in providing specific opportunities for Dong Yuhui’s development. Yu acknowledged that he made an inappropriate decision on corporate governance and failed to promptly grasp the current market situation. Yu Minhong’s swift decision-making in response to external public opinion reflects the prevalent workplace anxiety. Investors, bosses, management, and employees see reflections of their own predicaments in this incident, prompting profound contemplation on their individual professional situations.

Symbolic capital, a concept introduced by French sociologist Pierre Bourdieu, reveals the economic principles of symbolic activities (symbolic phenomena) in a market system. Dong Yuhui, through close interaction with fans, has accumulated substantial symbolic capital, potentially rivaling the actual capital (economic capital) possessed by Yu Minhong. This has become a central element influencing the expansion and monetization of East Buy. The departure of Dong Yuhui raises questions about the platform’s ability to sustain its operations. In the era of personal IP, consumers stay with the platform because of individuals like Dong, not solely due to the platform itself.

Although Dong Yuhui is currently a frontline employee at East Buy, his ability to overturn the entire platform is a tangible reality. He has been promoted to Senior Partner of East buy and Assistant to President (Yu Minhong) & VP of New Oriental (NYSE: EDU) in the afternoon on December 18th.

This situation is currently in progress, and we will maintain ongoing attention to its developments.

3.NetEase Surpasses Meituan, Becomes Fourth-Largest Chinese Internet Company by Market Cap

As of December 13, NetEase has surpassed Meituan in market capitalization, reaching HK$542.5 billion and securing its position as China’s fourth-largest internet company by market value, following Tencent, Pinduoduo, and Alibaba. Notably, during the peak valuation of Chinese stocks in February 2021, Meituan’s market value was only a quarter of NetEase’s. However, the tables have turned in the past two years, with NetEase now leading.

This shift is attributed to Meituan’s substantial decline over the last three years, contrasting with NetEase’s comparatively stable performance. Since its peak in 2021, NetEase’s market capitalization has decreased by 21%, whereas Meituan has experienced a drastic drop of over 80%.

Around 2021, Meituan faced challenges in its community retail business expansion due to the regulatory policy(loosen Food Delivery Personnel KPI to ensure safety)[1] and weakened consumption. Furthermore, increased competition from TikTok has posed challenges to Meituan’s core business. The local life sector, where TikTok has gained prominence since 2019, intensified its market share by offering cost-effective group-buying packages in collaboration with merchants. Other platforms, including Gaode Maps, Tencent, and RED, have also entered the local life business, heightening competition.

Meituan’s most recent earnings report indicates that its new business remains unprofitable. Despite reduced losses, the new venture continues to impact overall profitability (eg, Meituan Selection, Meituan Grocery, Catering Supply Chain (Quick Donkey), Bike-Sharing, Power Bank, and Restaurant Management System), resulting in lackluster performance in the secondary market.

In contrast, NetEase’s Q3 2023 financial results reveal a more stable trend, particularly in its gaming business. The report, released on November 16, 2023, shows that NetEase achieved revenues of RMB 27.3 billion in Q3, marking an 11.6% year-on-year increase. The net profit attributable to shareholders was RMB 7.837 billion, reflecting a 17% year-on-year increase.NetEase’s gaming business played a significant role in its Q3 performance, contributing nearly 80% of net revenue. The company reported a year-on-year increase of 16.5% in net revenue from games and related value-added services, amounting to RMB 21.8 billion. This growth was primarily attributed to increased revenue from newly launched games, resulting in a higher gross profit from games and related services.

[1]: ‘Guiding Opinions on Implementing Responsibilities of Online Catering Platforms and Effectively Safeguarding the Rights of Food Delivery Personnel’

4.28.86% of Chinese Underage Gamers Reduced Spending in the Past Year

The 2023 China Game Industry Underage Protection Progress Report, unveiled at the China Game Industry Annual Conference on December 14th, highlights positive developments in curbing underage gaming. Over the past year, 28.86% of underage gamers reduced their activity, and public concern regarding underage game time constraints decreased by 70%, while apprehension about refunds for minors increased

% of students consumption performance in 2023: organge-unchanged, green-decrease, blue-increase

Major players in the Chinese gaming industry, exemplified by Tencent, are actively addressing the imperative of safeguarding minors online. Tencent’s Q1 financial report underscores a substantial reduction, with minors now comprising only 0.4% of game time and 0.7% of spending – a remarkable 96% and 90% decrease, respectively, compared to three years ago.

In alignment with regulatory requirements, leading game companies, including Tencent and NetEase, have implemented stringent anti-addiction measures for minors. This includes scrutinizing accounts suspected to be owned by minors and imposing restrictions on their gaming time and expenditures.

Industry experts emphasize that the absence of adequate family supervision is a pivotal factor contributing to minors’ gaming addiction. They assert that tackling this issue necessitates a comprehensive strategy involving tripartite governance from society, families, and platforms. While anti-addiction measures on gaming platforms are crucial, they should form part of a more extensive initiative. Ultimately, parents play a central role in overseeing and guiding their children’s gaming activities.

5.Taiwan KMT Vice Chairman’s Visit to Mainland China Sparks Controversy Ahead of Taiwan Presidential Election

On Thursday (14th), Taiwan’s Kuomintang (KMT) party announced that its Vice Chairman, Hsiao Li-yen, is currently meeting with members of the Taiwanese community in mainland China. With just one month remaining until the Taiwan presidential election, Hsiao’s visit to the mainland has drawn criticism from the ruling party.

According to a statement by the KMT, Hsiao, who arrived in the mainland on the 13th, is visiting Chengdu, Nanchang, Zhongshan, Xiamen, and Chongqing in response to invitations from the Taiwanese business community. The statement mentioned that Hsiao’s visit had been planned since October, with the primary objective being to “extend the achievements and goals of the previous visit.” It also emphasized the need for leaders on both sides to maintain communication channels, especially amid heightened tensions between the United States and Beijing.

While Hsiao Li-yen is likely to meet officials from China’s Taiwan Affairs Office (TAO), the KMT denied reports suggesting she would meet “senior” TAO officials. The Chinese TAO has not responded to requests for comments.

The ruling Democratic Progressive Party (DPP) in Taiwan has called on the KMT to explain why it sent Hsiao to China “secretly” so close to the upcoming election and demanded clarification on whom she would meet. In a statement, the DPP expressed, “No wonder international public opinion and the people of Taiwan question: does the KMT need to report everything to Beijing first?”

Over the past year and a half, Hsiao has visited mainland China four times, meeting with the Director of China’s Taiwan Affairs Office, Song Tao, in February, June, and August of this year.

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