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India E-Commerce: Trends And Notable Players

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia, 6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s e-commerce market has been booming but the story is just beginning. Out of India’s 1.3 billion population (the world’s second largest after China), an estimated 574 million are active internet users according to consulting company Kantar representing an internet penetration rate of about 44%. That is bigger than the entire population of the United States. This makes India the second largest online market after China which has 904 million internet users as of March 2020 according to CNNIC.

There is still tremendous opportunity for internet users to grow in number. Kantar estimates an 11% growth rate for 2020, with India’s internet users reaching 639 million. As India’s online population grows propelling to country’s digital economy, e-commerce is poised to grow as well. With about 100-110 million online shoppers as of 2019 according to data from a report by Bain & Co, about 17% of India’s internet users shop online.

By comparison, representing 78.6% of China’s internet population, China has 710 million online shoppers as of March 2020,. That is about seven-times that of India’s online shopper population, suggesting an enormous growth opportunity in India. As Indian incomes grow and consumption increases, consumers will seek greater product variety, and quality, at competitive prices. E-commerce can help unlock consumer spending as incomes rise. India’s GDP per capita growth has exceeded 5% since 2016.

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita  rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia,  6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s youthful population bodes well for e-commerce growth; as of 2020, 43.82% of India’s population was aged 24 years and below according to data from the CIA World Factbook. As they enter the workforce they will continue to be a major driving force for Indian e-commerce in the long term. India’s e-commerce market is expected to quadruple from US$ 48.5 billion in 2018 to US$ 200 billion by 2026 according to the International Trade Administration representing a CAGR of 19.37%.

Trends and notable players

Social commerce

Riding on India’s vast user base of social media users, social commerce is on the cusp of growth. India had the biggest rise in social media users in 2019, seeing 130 million new users (a 48% YoY) according to Hootsuite. Yet, at just 29% of the total population as at January 2020, India’s social media penetration is lower than the world average of 49% indicating ample room for growth. As more Indians get social, social commerce is poised to flourish.

Bar chart showing social media penetration for selected countries as of January 2020. The worldwide social media penetration at 49%. Social media penetration was 99% in the UAE, 88% in Taiwan, 87% in South Korea, 81% in Malaysia, 79% in Singapore, 78% in Hong Kong, 75% in Thailand, 72% in China, 70% in the United States, 67% in Vietnam, 67% in Philippines, 65% in Japan, 59% in Indonesia, and 29% in India. Data from Hootsuite.

Considered to be the second wave of e-commerce in the country notable Indian social commerce players looking to capitalize on this vast and growing userbase include Meesho, Bikayi, and JioMart. While first wave e-commerce giants such as Walmart-owned (NYSE:WMT) Flipkart, Amazon (NASDAQ:AMZN) and Snapdeal offer the opportunity to open an online store on their marketplace platforms, Meesho, Bikayi and JioMart leverage on social media platforms to offer businesses and individuals a chance to sell online, somewhat similar to WeChat’s mini-programs which enabled businesses to open stores within the WeChat app. China’s third biggest e-commerce player Pinduoduo for instance was born out of a WeChat’s mini-program.

Whatsapp is the number one messaging app in India with more than 400 million Whatsapp users, making India the country with the world’s biggest Whatsapp user population. Not surprisingly, Whatsapp is a popular social media platform for social e-commerce. Y Combinator-backed Bikayi’s app enables businesses to create a Whatsapp-integrated e-commerce store in a few minutes. The startup reportedly has more than 100,000 businesses using its app. For micro and small SMEs with little capital for a full-fledged e-commerce store, Bikayi’s app is an ideal solution for them to offer their catalogs online. From a consumer point of view, Bikayi is an ideal solution for a mobile-first market like India where 97% of internet users are mobile internet users.

Bikayi’s larger rival Meesho, also enables businesses to open a social media store but its app supports not just Whatsapp, but several other popular social media platforms as well such as Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Instagram. There are more than 260 million Facebook users in India, making it the leading country in terms of Facebook users.

New social commerce startup Bulbul meanwhile has attracted investor interest with Bulbul raising USD 14.7 million from Sequoia Capital this year. 

The elephant in the room however is JioMart, the online grocery arm owned by petrochemicals behemoth Reliance Industries (NSE:RELIANCE) which has also jumped into social commerce arena; already available to shoppers via app or e-commerce website, JioMart recently piloted a Whatsapp-based grocery ordering platform that allows shoppers to order essentials through Whatsapp. The order is then routed to one of the 1,000+ mom-pop ‘kirana’ stores nearby the customer to fulfill the order.

The social commerce opportunity is driven not just through rising social media penetration but also from a growing number of online shoppers in rural India where internet penetration is less than 30% but growing considerably faster than urban India. According to data from the Telecom Regulatory Authority of India (TRAI), urban internet users grew 1.54% during the quarter ended march 2020 while rural internet users grew 6.53% during the same period.

For these new online shoppers, there is a general lack of trust for the millions of unknown online merchants on e-commerce marketplaces such as Flipkart. Social commerce on the other hand enables merchants to interact with first time online shoppers, clear their doubts and essentially provide a ‘face’ to the online store, helping bridge the trust deficit. Meesho for instance generates about three-quarters of its business from outside the top six cities.

Vertical e-commerce

While Amazon, Walmart’s Flipkart, and homegrown newcomer Reliance JioMart focus on the horizontal e-commerce marketplace arena which is crowded with other rivals such as Snapdeal, and ShopClues to name a few, India is increasingly seeing a growing number of vertical e-commerce marketplaces the e-commerce landscape. Flipkart’s fashion marketplace Myntra, Reliance Industries’ fashion marketplace Ajio, beauty e-commerce marketplace Nykaa, and furniture e-commerce marketplaces Pepperfry, and Urban Ladder are some notable established vertical e-commerce marketplaces. As they increasingly gain popularity along with growing e-commerce popularity in India, the number of specialized vertical e-commerce marketplaces is anticipated to continue an upward march in the coming years.

A report by research firm Redseer expects vertical e-commerce marketplaces to grow their share of India’s online retail Gross Merchandise Value (GMV) from 20% in 2019 to 30% by 2022. Marketplaces in industry verticals that have a strong advantage against horizontal e-commerce marketplaces highlighted in the report include pharmaceuticals, furniture, mom and baby care, and beauty and personal care, owing to their differentiated supply chain, and non-standard product which leads to consumer expectations of greater variety, quality and specialized service.

Mom and baby care e-commerce marketplace FirstCry achieved unicorn status this year with a valuation of US$ 1.2 billion, after Softbank committed to investing US$ 400 million in February.

Homegrown startup Livspace, an interior design marketplace connecting homeowners with trusted interior designers, vendors, and customers, currently serves 9 metro areas in India (Bengaluru, Chennai, Hyderabad, Delhi, Gurugram, Noida, Mumbai, Thane and Pune) and plans to expand locally and overseas (its only overseas market is Singapore currently) having raised US$ 90 million in September this year in Series D equity funding, and Indian Rupees 300 million in debt funding in October. Livspace is expected to generate US$ 500 million within the next 24-30 months.

Indian agriculture marketplace DeHaat meanwhile, raised US$ 12 million from Sequoia Capital this year,  after raising US$ 4 million in Series A funding in March last year, bringing the total amount raised to US$ 16 million to date.

Direct-to-consumer (D2C) e-commerce

India’s vast retail market features numerous local brands, and with e-commerce gaining popularity in the country, there been a trend of these brands going directly to consumers, essentially eliminating ‘online middlemen’ e-commerce marketplaces.

According to a report by e-commerce-focused SaaS company Unicommerce, there was a 65% increase in brands developing their own websites in June 2020. Meanwhile, an increasing number of online shoppers too appear to be going direct to brand websites, bypassing marketplaces. According to the Unicommerce report, brand websites reportedly saw an 88% increase in order growth compared with 32% for marketplace platforms during India’s lockdown period in June 2020 which led to an increase in self-shipped orders. Given the many advantages of a brand going direct to the consumer, such as greater control over brand perception, and direct interaction with consumers, it is likely that brand e-commerce popularity will continue growing in the years ahead.

The rise of D2C e-commerce in India looks set to follow a path similar to that of China, where rising brand e-commerce has led to the birth of brand e-commerce SaaS (Software as a Solution) companies such as Baozun (NASDAQ:BZUN). India too, has its own homegrown brand e-commerce SaaS solutions companies, notable ones include Zoho and Zepo.

Last year, Indian SaaS major Zoho Corp which has millions of users in more than 180 countries, launched an e-commerce solution enabling small retailers to set up their own e-commerce sites. Unlike other solutions that charge users on a per transaction basis, Zoho will charge a flat monthly fee for stores earning up to US$ 1,000 monthly after which a transaction fee of 1.5% is imposed (for its most basic plan). Zoho is a very established SaaS player offering a plethora of SaaS applications including productivity tools, CRM, and cloud solutions for finance and HR to name a few. This extensive suite of SaaS solutions and an existing customer base gives Zoho ample cross-selling opportunities for its new e-commerce SaaS solution which puts the company in great position to capitalize on India’s rising brand e-commerce market.

Homegrown e-commerce enabler Zepo which raised INR 31.9 million in August 2017 in funding from angel investors Kunal Shah (co-founder FreeCharge), Anupam Mittal and Hetal Sonpal, has its own advantages in the brand e-commerce race. The company offers merchants an integrated platform that enables them to manage their own e-commerce website, as well as manage orders from their online stores on marketplace platforms such as Amazon and Flipkart. For merchants wanting to maintain official marketplace stores while running their own e-commerce website, Zepo could be the player with the ideal solution.

Shopify (NYSE:SHOP), one of the world’s most popular e-commerce SaaS solution providers is another notable player in this space. Having begun operations in India in 2014, Shopify now has thousands of Indian merchants on its platform including Blue Tokai Coffee, apparel company Raymond Group, clothing brand NUSH by Anushka Sharma, John Jacobs Eyewear to name a few. Shopify said the number of merchants in India using their platform grew 44% in 2019 and GMV grew 59%. Shopify supports ten languages in India which is an advantage as more non-English or Hindi speaking Indians increasingly shop online (according to the latest census data from The Office of the Registrar General and Census Commissioner of India, Hindi was spoken by 43.63% of the population which means more than 56% of India’s population speak other languages).

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The Technology Trends Powering China’s Agrifood Sector

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

China is one of the world’s largest food producers. With the country’s middle class expanding along with growing incomes, food demand in China has been on a steady growth path. China is the world’s largest wheat consumer, largest fruit consumer, largest egg consumer, and largest meat consumer. China is the world’s biggest importer of soybeans, is the world’s largest tea market, and is the world’s largest market for alternative meat. China is expected to be the world’s largest dairy market by 2022, and the country is expected to overtake the United States to become the world’s largest grocery market as well.

With Chinese per capita incomes standing at less than one-third of the United States, there is tremendous potential for growth in China’s agrifood sector as per capita food consumption grows along with rising prosperity opening interesting opportunities. While China has attracted much attention due to some high profile outbound agri-food acquisitions such as ChemChina’s of Swiss seed giant Syngenta, and China Mengniu Dairy’s (HKG:2319) acquisition of Australian dairy company Bellamy’s Australia, business optimism is strong on the domestic front as well. Listed agrifood companies such as New Hope Liuhe Co Ltd (SHE:00876), and Muyuan Foods Co Ltd (SHE:002714) have seen share prices jump over the past five years; Muyuan Foods Co Ltd saw its share price jump more than ten-fold during the five years until August 2020 while New Hope Liuhe’s share price quintupled during the same period. Hong Kong-listed China Mengniu Dairy’s share price also quintupled during the same period. On the startup front, China remains the world’s second largest market for agrifood tech startup investing by total deal number and amount invested after the US according to AgFunder.

Much of investor attention is currently on China’s booming eGrocery market, which raked in 60% of agrifood startup investment in 2019 according to data from Agfunder. However, there are numerous other sectors worth watching particularly in agri-tech which has strong government support. This year, the Chinese government released the “Digital Agriculture and Rural Area Development Plan 2019-2025” which aims to have digital agriculture account for 15% of China’s agricultural value-add.

Precision farming

Precision farming is a growth industry and the opportunity is no different in China, one of the world’s largest agricultural producers. China is upgrading is agriculture infrastructure to precision farming. The vast majority of China’s farms are small scale farms with basic machinery. Agriculture 4.0 technologies such as precision and smart farming accounts for just 1% of the nation’s total agricultural production. For instance according to a 2018 article by a Chinese economist HE Fan, agricultural drone penetration is about 65% in the U.S. but just 2% in China. Innovation and advancement in areas such as AI, IoT, remote sensing, and 5G will spur greater adoption.

The regulatory environment is favorable too, with the Chinese government stepping up efforts to boost domestic agricultural yields and production in an effort to reduce reliance on food imports from the U.S.

Column chart showing crop yields in China vs United States for selected crops during crop year 2018/19. During crop year 2018/19, coarse grain yields in the United States stood at 10.44 metric tons per hectare compared with 5.95 metric tons per hectare in China. Wheat yields were 3.2 metric tons per hectare in the United States and 5.42 metric tons per hectare in China. Corn yields were 6.11 metric tons per hectare in China and 11.07 metric tons per hectare in the United States. Barley yields were 3.64 metric tons per hectare in China and 4.17 metric tons per hectare in the United States. Oats yields were 1.15 metric tons per hectare in China and 2.33 metric tons per hectare in the United States. Sorghum yields were 4.79 metric tons per hectare in China and 4.53 metric tons per hectare in the United States. Rice yields were 7.03 metric tons per hectare in China and 8.62 metric tons per hectare in the United States. Soybean yields were 1.9 metric tons per hectare in China and 3.4 metric tons per hectare in the United States. Cottonseed yields were 3.11 metric tons per hectare in China and 1.26 metric tons per hectare in the United States. Peanut yields were 3.75 metric tons per hectare in China and 4.48 metric tons per hectare in the United States. Sunflower seed yields were 2.71 metric tons per hectare in China and 1.94 metric tons per hectare in the United States. Rapeseed yields were 2.03 metric tons per hectare in China and 2.09 metric tons per hectare in the United States.

One such area where precision farming holds tremendous potential in China is pesticide use. China feeds about 19% of the world’s population with just 7% of the world’s arable land. While this is commendable, the country also uses about 47% of the world’s pesticides, making it the world’s largest user of agricultural chemicals. China’s heavy pesticide use despite the country’s relatively minute cropland share, is a national concern. In an effort to improve food safety, and minimize environmental damage caused by pesticide overuse and thereby improve the sustainability of Chinese agriculture, the Chinese government has been phasing out highly toxic pesticides from use over the past few years.

Chinese agritech drone startups such as XAG, and McFly are well placed to emerge as solution providers to tackle China’s pesticide issue. XAG is a leader in China’s smart agriculture field, with more than 40,000 of its agricultural drones operating in China. Baidu-backed McFly, which raised US$ 14 million in 2019 is a relatively new player. Both develop AI-powered remote sensing agriculture-focused aviation equipment to help farmers reduce farm pesticide use. For instance McFly’s precision pesticide spray is able to detect with 97% accuracy the presence of pests on specific areas of a farm land and spray pesticide accordingly.

This precise use of pesticides eliminates the need for the current practice of completely spraying an entire farmland with pesticide since more often than not, pest distribution occurs in parts of the farm, not throughout the farm. The benefits are clear; consumers have safer food while farmers benefit from reduced farm input costs.

The growth story is just beginning. Farmers need large sized farms to justify the investment in expensive agricultural drones. In McFly’s case for instance, farmers need reportedly a little more than 13 hectares to justify the investment in McFly’s commercial services. However, unlike in the United States, very few Chinese farmers have farmland of that size. McFly worked around this limitation by offering a group-buying model to make the services more affordable, which has been successful. However, McFly’s bottom margins may be better off dealing with large-scale individual customers as opposed to millions of small scale users. This will likely materialize in the years ahead. 

For centuries, millions of small-scale farms have been dominating China’s rural areas, and these are often managed by farming families themselves. Apart from the cost disadvantage of small scale farming due to their inability to benefit from of economies of scale, it has also been found that agricultural chemicals are often used inefficiently on small farms according to a research study conducted a team of researchers from the Universities of Melbourne, Zhejiang, Fudan, Wuhan and Stanford.

The inefficiencies of small-scale farming along with China’s growing problem of ageing farmers has prompted the Chinese government to clear the path for private investment in large-scale commercial farming, through rural land reform which will allow family farmland owners to collectively rent out their land to large-scale farmers to cultivate the land on a large scale.  Much like the gradual disappearance of America’s small family farms in the in the mid 20th century, China too appears to be on the path towards farm consolidation where small family farms will gradually give way to modernized, large scale commercial farms which suggests good for McFly.

Agricultural e-commerce

According to government data, e-commerce sales of agricultural produce reached CNY 554.2 billion in 2018, representing 9.8% of total agricultural sales. There is still ample room for growth. Under China’s “Digital Agriculture and Rural Area Development Plan 2019-2025” the Chinese government is aiming to boost the proportion of agricultural products sold online to reach 15% by 2025 which suggests bright prospects for agri-marketplaces in China. The competitor landscape however is crowded with players. Pinduoduo (NASDAQ:PDD) is perhaps one of the biggest names in the game having shot up to becoming China’s third largest marketplace after Alibaba and JD.com, by capitalizing on the growth of rural e-commerce. Their strategy was largely based on agriculture e-commerce and their popularity as a platform for rural farmers to sell their wares to city folk hungry to buy fresh agricultural produce straight from farmers continues to this day. Pinduoduo’s group-buying model enabled shoppers to team up with other interested buyers to collectively make a purchase of farm produce. Shoppers earn discounts for the relatively large purchase while farmers get to sell their produce at higher prices (since there is no middleman involved) and in relatively large order sizes thus saving them the hassle of fulfilling a large number of small orders.

Valued at US$ 7 billion,  agri-marketplace unicorn Meicai took a different route, connecting farmers with restaurants and hotel chains instead who also make relatively large purchases (for instance, the minimum order quantity is 5kilograms for vegetables). Meicai started off as an online retailer, directly sourcing and selling the fresh produce themselves. Starting 2017 however, the platform was opened to third party merchants as well.

The company in-house cold chain logistics network which was built with an investment of more than RMB 2 billion. This supply chain advantage is a significant competitive strength, with the company boasting more than 74 cold storage centers scattered in 52 cities with a warehouse area of approximately 800,000 square meters. Meicai has a fleet of more than 17,000 delivery vehicles and the company has a daily parcel handling capacity of more than 5.2 million. Meicai’s sales are expected to exceed RMB 14 billion in 2019 and although the company is currently loss-making, it is cash flow positive and is expected to turn in a profit by 2020.

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China’s Centuries-Old Plant Based Meat Industry Set For Growth

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

According to Euromonitor China’s “free from meat” market which includes plant-based meat products has grown 33.5% since 2014 to reach US$ 9.7 billion in 2019. The industry is forecast to reach US$ 11.9 billion by 2023. Already the world’s largest market for alternative meats, the Covid pandemic could serve as a catalyst to encourage greater numbers of non-vegetarian Chinese to adopt alternative meats as consumers, wary of potential sickness from animal protein increasingly turn to plant-based proteins such as plant-based meat and plant-based eggs. For instance, Just Egg, a plant-based egg alternative reportedly saw sales jump 30% on e-commerce platforms JD.com (HKG:9618) (NASDAQ:JD) and Alibaba’s Tmall since the Covid outbreak.

The potential is enormous; protein demand in China is on a structural uptrend, driven by a growing middle class, rising incomes, and living standards. China is the world’s largest meat consumer, the world’s largest meat importer, the world’s largest meat producer, and the world’s largest soybean importer (demand for which is largely driven by its livestock industry which uses soybean meal as animal food). China’s soybean imports by value are more than 10 times bigger than second-placed European Union.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Yet, there is still room for growth. Although China has caught up with Asian neighbors such as South Korea in terms of average protein supply, China still falls short when compared with Western countries such as the United States and Germany.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

However, satisfying this expected protein demand may prove an uphill challenge due to scarce resources; home to 19% of the world’s population but owning just 7% of the world’s arable land, China has very limited arable land. At just 0.086 hectares per person, China’s arable land per capita is lower than India, the United States, the European Union, and Russia.

Bar chart showing arable land per capita for selected countries as a 2016. In 2016, arable land per capita reached 1.904 hectares per person in Australia, 0.853 hectares per person in Russia, 0.471 hectares per person in the United States, 0.2 to 3 hectares per person in the European Union, 0.118 hectares per person in India, and 0.086 hectares per person in China. Data from the World Bank.

And with the livestock industry producing just 18% of the world’s calories and 37% of total protein despite occupying 77% of the world’s agricultural land according to figures from Our World in Data, it is clear that animal protein is far more resource intensive than plant-based protein, and so China, already the world’s largest meat producer, likely has very little room for further land expansion for livestock which makes the case for plant-based meats in China is very compelling.

Furthermore, the industry is bound to benefit from support from the Chinese government which reportedly aims to cut down meat consumption by 50% to reduce greenhouse gas emissions. Plant-based meats are an answer to this and the climate-friendly narrative of plant-based meats is a major draw factor, particularly among China’s sustainability-conscious millennial generation. China has about 400 million millenials, compared with about 80 million in the United States.

The opportunity has not gone unnoticed. Global alternative protein players such as Beyond Meat (NASDAQ:BYND), and Impossible Foods have stepped up marketing efforts in China while food and beverage players such as Starbucks, and Yum! Brands’ (NYSE:YUM) KFC, Pizza Hut and Taco Bell have launched plant-based menus. KFC’s plant-based chicken will be supplied by agri-business giant Cargill, while Stabucks’ plant-based menu will see faux meats supplied by Beyond Meat.

Beyond Meat also partnered with Alibaba’s (HKG:9988) (NYSE:BABA) grocery retailer Hema to bring its plant-based packaged meat to supermarket shelves in China.

Competitive landscape: China’s mock meat industry is centuries old, and the country’s has well established players offering a wide variety of plant-based meat products

Imitation meat originated in China, and restaurants in Buddhist temples throughout the country have been serving fake meat as far back as the Song dynasty which lasted until the 13th century. A key pillar of Buddhist principles is respect for all life i.e., all living creatures and hence vegetarianism is commonly practiced among Buddhists. To accommodate the diets of patrons and guests, these temple kitchens mastered the art of preparing mock meats, a tradition which continues to this day in numerous Chinese Buddhist temples not only throughout China but also around the world from Malaysia, to the United States. Over the centuries, restaurants sprung up throughout the Middle Kingdom offering faux meat menus to cater to vegetarian Buddhists. According to China Daily there are more than 300 restaurants offering fake meat in Beijing alone.

Chinese entrepreneurs and merchants brought their expertise with them during their overseas travels and hence countries with a significant ethnic Chinese population such as Malaysia, also have their share of mock meat restaurants and mock meat manufacturers. Notable Malaysian players such as Ahimsa (which literally means “non-violence” in Sanskrit) for instance have been in the business for decades. X% of Malaysian vegetarian meat companies in the LD Investments database are more than 10 years old.

Thus, China has a very long history of manufacturing plant-based protein and the country has several players producing mock meat products out of a variety of plant-based foods such as tofu skin (known as yuba), soybeans, wheat gluten (sometimes called seitan), mushrooms, peanuts, and vegetables such as potatoes and carrots.

These well established players offer much more than just burghers and sausages, with their product range covering a wide breadth of faux meat and seafood products from ordinary staples such as beef, pork, lamb, chicken, crab meat, roast duck, and cuttlefish, to exotic meats such as eels, puffer fish, shark’s fin, and abalone.

It has been noted however that a number of these companies’ products are targeted at China’s vegetarian population, and the products often do not mimic the taste, texture, and color of authentic meat very well. Hence, while they satisfactorily serve the needs of China’s vegetarian population, the products may need some tinkering before China’s mammoth non-vegetarian population will be sufficiently persuaded to make the switch and consume plant-based meats on a regular basis. Impossible Foods’ burgher for instance uses a patent-protected lab-grown heme which makes its vegetarian burgher look, taste, and “bleed” like the real thing, and thereby differentiates itself from competing burghers.

This probably explains why despite having a centuries-old and well-established mock meat industry, Chinese still favor animal meat over plant-based options and animal meat’s popularity has only grown along with the country’s affluence-driven protein demand. China’s vegetarian population is just about 3.8% of the total population.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total population.

And in absolute terms, China’s vegetarian population is dwarfed by Asian neighbors India, and Indonesia.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

Nevertheless, these established players will seek to expand beyond their traditional target market of vegetarian Buddhists, which suggests competition will be fierce.

Overseas players will be up against local upstarts and established domestic players

Overseas companies Beyond Meat, JUST, and Impossible Foods will be up against local upstarts such as Zhenmeat (often touted as China’s answer to Beyond Meat), and OmniPork who are also beefing up their businesses to carve out their slice of the market.

While Beyond Meat and Impossible Foods’ product offering is heavily skewed towards the western palate with products such as burghers and sausages, China’s domestic players are heavily focused on Chinese taste buds with a focus on pork rather than beef (given that pork is China’s most popular meat) and with a product range covering local delicacies such as dumplings, mooncakes, and meatballs.

Zhenmeat for instance offers local delicacies such as plant-based meat mooncakes, and konjac-based crayfish. Hong Kong-based OmniPork offers a line of pork products tailored to Chinese taste buds such as pork buns and pork strips. Pork makes up 80% of China’s meat market, and China is the world’s largest pork consumer accounting for nearly half of global pork consumption.

Pie chart showing pork consumption by country in 2018. Accounting for 49.3% of global pork consumption, China was the world’s biggest pork consumer followed by the European Union with 19%, and the United States at 8.7%. Other countries accounted for the balance 23.1%. Data from the United States Department of Agriculture, Foreign Agricultural Service, and LD Investments analysis.

With domestic demand outstripping domestic supply, China has also held the position as the world’s largest pork importer for a few years, before being overtaken by Japan in 2018 but expected to regain the leading position in 2019 according to data from the United States Department of Agriculture (USDA) as the African Swine Fever (ASF) disease reduced China’s domestic pig herd by at least 40%, leading to a spike in imported pork from all China; China’s pork imports by dollar value jumped 117.4% in 2019.

The ASSF outbreak has also pushed up meat prices such as pork helping further push interest towards plant-based pork. The current conditions prevailing in China’s pork market suggest apt timing for OmniPork to capture its share of China’s alternative protein market.

Established domestic mock meat players to watch include Whole Perfect Food and Godly. Founded in 1993, Whole Perfect Food has been in the industry for decades selling faux meat to Chinese consumers shunning meat for religious reasons. Now they are looking to expand that market and the company could emerge as a strong contender armed with a product range of more than 300 vegetarian/plant-based meat and meat product alternatives including vegetarian versions of oyster sauce, tailored to the Chinese palate.

Founded in 1922, Godly 功德林is considered to be one of the pioneers of plant-based meats. And like Whole Perfect Food offers a plethora of faux meat products from mock meat chicken, duck, ham and traditional meats such as vegetarian dried intestines, to local delicacies such as mock meat buns, dumplings, traditional Chinese cakes, and mooncakes. Their official store on JD.com has over 200 reviews, most of which are positive.

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World Wheat Trade, Supply, And Demand Outlook

Column chart showing world, flour, and products, export share by country. Russia's share of world wheat, flour, and products exports grew from 7.7% in calendar year 2012/13 to 18% in calendar year 2019/20 while The European Union's 15.5% in calendar year 2012/13 to 20% in calendar year 2019/20, the United States' share dropped from 18.8% in calendar year 2012/13 to 13.8% in calendar year 2019/20, Ukraine's share grew from 4.9% in calendar year 2012/13 to 11.1% in calendar year 2019/20, Canada's share dropped slightly from 12.6% in calendar year 2012/13 to 12.2% in calendar year 2019/20, and Australia's share dropped from 14.4% in calendar year 2012/13 to 5.3% in calendar year 2019/20.

Wheat flour saw a spike in demand early this year in the United States, as a Coronavirus baking boom and widespread stay at home orders triggered demand from retail consumers for family flour (used for home baking),and wheat-based prepared and processed food stuffs such as pasta, breads, and wheat-based snack products. America’s number one flour brand – King Arthur Flour – saw flour sales spike 2,000% in March alone, and U.S. wheat flour production during the first three months of calendar year 2020 increased more than 4% according to data from the United States Department of Agriculture.

Demand

China is the world’s largest consumer of wheat, followed by the European Union and India.

Bar chart showing world wheat consumption by country calendar year 2019/20. At 126 million metric tons, China was the biggest consumer of wheat followed by the European Union at 122 million metric tons, India at 96.11 million metric tons, Russia at 40 million metric tons, the United States at 29.82 million metric tons, Pakistan at 25.4 million metric tons, Egypt at 20.6 million metric tons, Turkey at 19.9 million metric tons, Iran at 16.6 million metric tons, Brazil at 12.1 million metric tons, Algeria at 10.85 million metric tons, Morocco at 10.8 million metric tons, Indonesia at 10.5 million metric tons, Canada at 10.4 million metric tons, Uzbekistan at 9.5 million metric tons, and Ukraine at 9.1 million metric tons. All other countries consumed 173 million metric tons.

The world’s three largest wheat consumers are also the world’s leading wheat producers.

Bar chart showing world wheat production by country during calendar year 2019/20.At 154.94 million metric tons, the European Union was the world’s largest wheat producer followed by China at 133.59 million metric tons, India at 103.6 million metric tons, Russia at 73.61 million metric tons, United States at 52.26 million metric tons, Canada at 32.35 million metric tons, Ukraine at 29.17 million metric tons, Pakistan at 24.3 million metric tons, and Argentina at 19.74 million metric tons.

Although domestic wheat production satisfies the vast majority of all three countries’ wheat consumption requirements, for China and the European Union, domestic demand is outstripped by supply and hence both countries appear in the ranks of the world’s biggest wheat importers. China accounts for 2.8% of global wheat imports and the European Union accounts for 2.6% as of calendar year 2019/20 according to data from the United States Department of Agriculture.

Bar chart showing world wheat, flour, and products Imports by country during calendar 2019/20. At 13.3 million metric tonnes Egypt emerged as the world's biggest importer, followed by Turkey at 10.95 million metric tonnes, Indonesia at 10.8 million metric tonnes, Philippines at 7.2 million metric tonnes, Brazil at 7.18 million metric tonnes, Algeria at 6.8 million metric tonnes, Bangladesh at 6.7 million metric tonnes, Japan at 5.68 million metric tonnes, China at 5.38 million metric tonnes, Mexico at 5.2 million metric tonnes, Nigeria at 5.2 million metric tonnes, and European Union at 4.9 million metric tonnes.

China

China’s wheat consumption has been generally flat over the past several years with wheat consumption hovering around 125 million metric tons to 112 million metric tons during calendar years 2012/13 to 2019/20 according to data from the United States Department of Agriculture. 90% of China’s wheat demand is met from domestic production and about 10% is met through imports. China has a 95% self-sufficiency target for key staples rice, wheat and corn consumption and allows a certain amount of imports through a tariff rate quota (TRQ) system. China sets annual corn quotas at 7.2 million ton every year, wheat quotas at 9.64 million tons, and rice at 5.32 million tons.

Looking ahead, there is little room for China to grow domestic wheat production to replace imports. China’s wheat yields are among the highest in the world.

Bar chart showing wheat yields by country during calendar year 2019/20. At 6.4 metric tonnes per hectare Egypt has the highest wheat yields in the world, followed by Mexico at 5.56 metric tonnes per hectare, China at 5.42 metric tonnes per hectare, the European Union at 5.36 metric tonnes per hectare, Serbia at 4.92 metric tonnes per hectare, Uzbekistan at 4.29 metric tonnes per hectare, Ukraine at 3.73 metric tons per hectare, Uruguay at 3.68 metric tonnes per hectare, India at 3.37 metric tonnes per hectare, Canada at 3.26 metric tonnes per hectare, Argentina at 3.22 metric tonnes per hectare, United States at 3.2 metric tonnes per hectare.

And with China being home to about 19% of the world’s population, but having about 7% of the world’s arable land, China’s arable land availability is tight; China’s arable land per capita stood at 0.086 hectares per capita in 2016, compared with 0.118 hectares per capita in India, 0.223 hectares per capita in the European Union, and 0.471 hectares per capita in the United States, the same year according to data from the World Bank.

Bar chart showing arable land per capita for selected countries as a 2016. In 2016, arable land per capita reached 1.904 hectares per person in Australia, 0.853 hectares per person in Russia, 0.471 hectares per person in the United States, 0.2 to 3 hectares per person in the European Union, 0.118 hectares per person in India, and 0.086 hectares per person in China. Data from the World Bank.

This suggests that trade policy reasons aside, China will continue to appear in the ranks of the world’s largest wheat importers in the years ahead.

China-U.S. trade tensions saw China imposing a 25% retaliatory tariff on U.S. wheat which saw China-bound wheat exports dive 84% from 2017 figures. However, as part of the Phase 1 Trade deal negotiated between the two countries early this year, China reportedly may increase wheat imports from the U.S. The relief to U.S. wheat farmers may be short-lived however; with China-U.S. relations on showing limited improvement and becoming increasingly fragile, the trade deal may fall apart.

Egypt

Egypt is one of the few countries worldwide where wheat consumption has been consistently growing, albeit at a very slow rate. And with domestic production outstripped by domestic consumption, Egypt, the world’s largest wheat importer for several years, has been seeing its share of global wheat imports steadily grow from 5.7% in 2012/13 to 7% in 2019/20.

Column chart showing world wheat, flour, and products Imports by share for selected countries. Egypt's share of world wheat, flour, and products grew from 5.7% in calendar year 2012/13 to 7% in calendar year 2019/20 while Japan's share dropped from 4.5% in calendar year 2012/13 to 3% in calendar year 2019/20, Algeria's dropped from 4.4% in calendar year 2012/13 to 3.6% in calendar year 2019/20, Brazil's share dropped from 5.1% in calendar year 2012/13 to 3.8% in calendar year 2019/20, Indonesia's share grew from 4.9% in calendar year 2012/13 to 5.7% in calendar year 2019/20, Turkey's share grew from 2.2% in calendar year 2012/13 to 5.8% in calendar year 2019/20, Philippines' share grew from 2.5% in calendar year 2012/13 to 3.8% in calendar year 2019/20.

Although the Egyptian government has made efforts to make the country self-sufficient in wheat, plans have so far yielded little results. While Egypt’s wheat demand has grown from 18.7 million metric tons in 2012/13 to 20.6 million metric tons, representing a CAGR of 1.39%, the country’s production has grown from 8.5% million metric tons in 2012/13 to 8.77 million metric tons in 2019/20 representing a CAGR of 0.45%. The result has been a steady increase import’s share of Egypt’s wheat consumption which grew from 45% in 2012/13 to 64.6% in 2019/20 according to LD Investments analysis of figures from the United States Department of Agriculture.

Wheat production growth in Egypt will likely be driven from area gains rather than yields as Egypt already has the highest wheat yields in the world. Given that imports account for more than 60% of Egypt’s annual wheat consumption, in order to achieve self-sufficiency, Egypt will have to increase wheat acreage nearly two-fold, a highly unlikely possibility in the foreseeable future. And with Egypt’s population growing at 2.28% annually, ranking it 31st among 237 countries according to figures from the Central Intelligence Agency, Egypt appears to be a far way off from achieving wheat self-sufficiency and is therefore likely to continue being a major importer in the near future. 

Turkey

Turkey’s wheat consumption has grown from 17 million metric tons in 2012/13 to 19.9 million metric tons in 2019/20 partly the result of an influx of Syrian refugees who are highly dependent on staples such as bread. With domestic wheat production hovering between 16 million metric tons to 21 million metric tons during the period, Turkey has been nearly self-sufficient in wheat production in the past, but a surge in exports of Turkish-made pasta and flour has driven demand for wheat imports, which in turn has propelled Turkey to emerge as the world’s second-biggest importer of wheat accounting for 5.8% of global wheat imports. Over the past two decades, Turkey’s flour exports have doubled and pasta exports have jumped six-fold helping propel the country to become the world’s largest exporter of flour, semolina and the world’s second-largest exporter of pasta.

Supply

Russia

Over the past two decades, Russia moved from being a net wheat importer to a net wheat exporter and the country accounted for about 18% of global wheat exports during the calendar year 2019/20, up from just 7.7% in 2012/13.

Column chart showing world, flour, and products, export share by country. Russia's share of world wheat, flour, and products exports grew from 7.7% in calendar year 2012/13 to 18% in calendar year 2019/20 while The European Union's 15.5% in calendar year 2012/13 to 20% in calendar year 2019/20, the United States' share dropped from 18.8% in calendar year 2012/13 to 13.8% in calendar year 2019/20, Ukraine's share grew from 4.9% in calendar year 2012/13 to 11.1% in calendar year 2019/20, Canada's share dropped slightly from 12.6% in calendar year 2012/13 to 12.2% in calendar year 2019/20, and Australia's share dropped from 14.4% in calendar year 2012/13 to 5.3% in calendar year 2019/20.

There is tremendous potential for continued production growth in Russia driven by area gains and yield improvements. At 2.39 metric tons per hectare, Russia’s wheat yields are just about half that of China. And the export market opportunity for Russian wheat is significant. Apart from being one of the biggest wheat suppliers to growth markets Turkey and Egypt, Russia is also well placed to increase its share of Chin’s wheat imports in the long term, following a path similar to Russian soybeans which have seen exports to China grow 51 times between 2013/14 to 2018/19; China is increasingly diversifying its wheat sources away from the United States in the face of growing China-U.S. tensions, and Russia could be a beneficiary of this move which suggests sunny days ahead for Russian wheat farmers and more business for Russian grain traders such as Russia’s state-owned United Grain Company (UGC) who is emerging as a formidable contender in global grain trade, which is currently dominated by international merchants such as Cargill Inc, ADM (NYSE:ADM), Glencore (LON:GLEN), and Louis Dreyfus.

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Singapore Economy: Current State, And Prospects

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share, transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

Like many other countries that have been economically affected by the COVID crisis, Singapore, Southeast Asia’s fifth largest economy, has officially entered into a technical recession with the economy contracting 13.2% year on year during the second quarter of 2020 and The Straits Times Index entering bear territory as well with a decline of nearly 20% this year.

By industry, 70% of Singapore’s nominal GDP is from the services sector and about 26% from the goods-producing sector (Manufacturing, Construction, Utilities).

Pie chart showing Singapore's nominal GDP by industry in 2019. Singapore's manufacturing sector was the largest contributor to GDP was a 20.9% share followed by wholesale and retail trade with a 17.3% share, business services with a 14.8% share, finance and insurance with a 13.9% share, other services Industries 11.3% share,  transportation and storage with a 6.7% share, information and Communications with a 4.3% share, ownership and dwellings with a 3.8% share, construction with a 3.7% share, accommodation and Food Services with a 2.1% share, and utilities with a 1.2%. Data from the department of Statistics Singapore.

Of the services sector, the largest sub-sector is the Wholesale & Retail Trade sector which accounts for 17.3% of Singapore’s GDP, followed by Business Services accounting for 14.8% and Finance and Insurance accounting for 13.9% of Singapore’s GDP in 2019. The largest services subsector – Wholesale and Retail Trade – was heavily hit by the COVID pandemic when Singapore, like many other countries around the world, went into lockdown with retail sales declining 52% year on year on May 2020 and 27.8% year on year in June 2020.

However, as business activities resumed in June 2020 (in phases), retail sales jumped 51% in June 2020, with almost all subsectors in Singapore’s Wholesale and Retail Trade sector enjoying gains, reflecting an unleashing of pent up consumer demand. In fact, sales in the Watches & Jewellery industry jumped a whopping 1,236.9% month on month, a spectacular gain for an industry considered to be non-essential, and the demand for which is highly elastic which suggests Singapore’s consumer spending power and consumer confidence have been little affected by the Covid pandemic so far.

Bar chart showing the percentage change in retail sales by industry in Singapore for the month of June 2020. Department store sales increased 319.3% month on month but declined 69.5% year-on-year. Supermarket and hypermarket sales declined 3.3% month-on-month but grew 43.4% year on year. Mini Mart and convenience store sales declined 0.1% month-on-month but increased 8.7% year on year. Food and alcohol sales increased 34.3% month on month but declined 45.7% year on year. Motor vehicle sales grew 212.4% month on month but declined 47.8% year on year. Petrol service stations sales grew 51.9% month on month but declined 33.6% year on year. Cosmetics, toiletries and medical goods sales increased 34.2% month-on-month but declined 33.1% year on year. Wearing apparel and footwear sales increased 251.1% month-on-month but declined 63.4%. Furniture and household equipment sales increased 125.1% month on month but declined 19.9% year-on-year. Recreational goods sales increased 126.3% month on month but declined 40.7% year on year. Watches and jewellery sale increased 1236.9% month-on-month but declined 53.5% year-on-year. Computer and telecommunications equipment sales increase 49.7% month on month and also increased 20.9% year on year. Optical goods and book sales increased 228.3 percent month on month but declined 39.4% year on year. Sale in the other categories grew 90.5% month-on-month but declined 42.5% year on year. Data the department of Statistics Singapore.

Domestic wholesale sales dropped 9.6% year on year in the first quarter of 2020 while foreign wholesale sales dropped 12.2% year on year in the first quarter of 2020 as all domestic and foreign trade except essential industries such as food decelerated sharply during the Covid lockdown. Consequently, wholesale sales declines were registered in all sub-sectors in the domestic Wholesale Trade sector except Food, Beverages & Tobacco which grew 3.5% year on year during the first quarter of 2020, and General Wholesale Trade which rose by 1.4% year on year during the same period.

Bar chart showing the percentage change in domestic wholesale trade sales by industry in Singapore for the month of June 2020. Food, beverages and tobacco sales increased 4.6% quarter-on-quarter and increased 3.5% year on year. Household equipment and furniture sales fell 9% quarter-on-quarter and fell 16.4% year on year. Petroleum and Petroleum products sales dropped 1% quarter-on-quarter, and 10.4% year on year. Chemicals and chemical products sales increased 5.9% quarter-on-quarter and fell 7.7% year on year. Electronic components sales dropped 2.8% quarter-on-quarter and dropped 17.5% year-on-year. Industrial and construction machinery sales declined 6.3% quarter on quarter and dropped 15.2% year on year. Telecommunications and computer sales dropped 4.3% quarter-on-quarter, and fell 9.9% year on year. Metals, timber and construction sales fell 1.6% quarter on quarter and dropped 15.3% year on year. General wholesale trade dropped 3% quarter on quarter and increased 1.4% year on year. Ship chandlers and bunkering sales dropped 0.7% quarter on quarter and dropped 10% year on year. Transport equipment sales dropped 9.5% quarter-on-quarter and dropped 10.5% year-on-year. Other wholesale trade sales dropped 0.9% quarter-on-quarter and dropped 3.6% year-on-year. Data from the department of Statistics Singapore.

As global trade slowed and global supply chains nearly ground to a halt, all sub-sectors within Singapore’s Foreign Wholesale Trade sector saw year on year declines in the first quarter of 2020 and all except Other Wholesale Trade saw quarter-on-quarter sales declines.

Bar chart showing the percentage change in foreign wholesale trade sales in Singapore during the month of June 2020. Food, beverages tobacco wholesale sales dropped 4% quarter-on-quarter and 2% year on year. Household equipment and furniture wholesale sales dropped 0.5% quarter-on-quarter and 6% year on year. Petroleum and Petroleum products wholesale sales dropped 14.1% quarter-on-quarter and 18.6% year on year. Chemical and chemical products wholesale sales dropped 9.9% quarter-on-quarter and 10.9% year-on-year. Electronic components wholesale sales dropped 0.5% quarter-on-quarter 3.4% year-on-year. Industrial & Construction machinery wholesale sales dropped 7.9% quarter-on-quarter and 18% year on year. Telcommunications and computers wholesale sales dropped 4.1% quarter-on-quarter and 6.6% year-on-year. Metals, timber and Construction wholesale sales dropped 7% quarter on quarter and 4% year on year. General wholesale trade dropped 14% quarter on quarter and 12.7% year on year. Ship chandlers and bunkering dropped 9.7% quarter on quarter 0.6% year-on-year. Transport equipment wholesale sales dropped 9.2% quarter-on-quarter and 22.2% year-on-year. Other wholesale trade was unchanged quarter-on-quarter and dropped 0.5% year-on-year. Data from the department of Statistics Singapore.

Singapore’s Manufacturing sector, the single largest GDP contributing sector, accounting for 20.9% of Singapore’s nominal GDP in 2019, was also affected by the COVID crisis with manufacturing output declining 8.1% in May 2020 and 6.7% in June 2020. Excluding biomedical manufacturing, manufacturing output grew 2.1% in June 2020 clearly benefiting from the gradual lifting of lockdown measures.

Line chart showing Singapore's manufacturing output on your growth during the month of April May and June 2020. Singapore total manufacturing output increased 12% in April 2020, dropped 8.1% in May 2020 and dropped  6.7 percent in June 2020. Excluding biomedical manufacturing Singapore's manufacturing output dropped 2.7% in April 2020, dropped 10.3% in May 2020, and increased 2.1% in June 2020. Data from Singapore economic development board.

With SMEs accounting for 99% of Singapore’s 273,100 business establishments and 72% of Singapore’s 3.52 million employees, the economic slowdown caused by the nationwide lockdown has dented SME finances causing Singapore’s unemployment rate to rise to 2.9% in the second quarter of 2020, the highest in more than a decade, and up from 2.4% in the previous quarter. The number of bankruptcy applications also reached an all-time high in March this year, though the number rapidly declined in the months after as the Singaporean government swiftly put relief measures in place through the Covid-19 (Temporary Measures) Act.

On the bright side, at less than 3%, Singapore’s unemployment rate is still on the lower end of the unemployment scale compared to the rest of the world; Singapore’s neighbor in the north, Malaysia, registered an unemployment rate of 5.3% in May 2020, up from 5% in April 2020. Additionally, Singaporean households are relatively financially stable with household debt being well covered by financial assets which suggests the general population is reasonably well placed to weather an economic storm.

Line chart showing Singapore household debt as a percentage of household financial assets. Singapore's household debt as a percentage of household financial assets at 23.81% in the first quarter of 2020, 24.07% in the fourth quarter of 2019, 24.64% in the third quarter of 2019, 25.05% in the second quarter of 2019, 25.72% in first quarter of 2019, 26.65% in the fourth quarter of 2018, 26.78% in the third quarter of 2018, 27.03% in the second quarter of 2018, 27.19% in the first quarter of 2018, 27.39% in the fourth quarter of 2017, 27.62% in the third quarter of 2017, 27.67% in the second quarter of 2017, and 27.94% in the first quarter of 2017. Data from the department of Statistics analysis from LD investments.

Singapore’s strong fiscal position also helped it maintain its AAA sovereign debt rating despite the government rolling out large stimulus measures (as much as 12% of GDP) to support the economy from the Covid impact. By comparison, Australia saw its credit rating outlook revised to negative by S&P Ratings.

The bigger potential risk to Singapore’s recovery is a downturn in the global economy and international trade, as well as economic downturns among key trading partners such as China, the United States, and Malaysia which will have a knock-on effect on Singapore’s economy as well.

China is Singapore’s biggest merchandise trade partner as of 2019.

Bar chart showing Singapore's top five merchandise trade partners in 2019. With a total  merchandise trade value of S$ 137.3 billion, Mainland China was Singapore's top merchandise trading partner in 2019, followed by Malaysia with S$ 113 billion, the United States with S$ 105 billion, The EU with S$ 93 billion, and Taiwan with S$ 66.5 billion.

And the United States is Singapore’s biggest services trade partner as of 2018, according to official data.

Bar chart showing Singapore's top five service trade partners in 2018. With a total service trade value of S$ 75.3 billion, the United States was Singapore's top services trading partner in 2018, followed by Japan with S$ 37.4 billion, Mainland China with S$ 35.3 billion, Australia with S$ 27.3 billion, and Ireland with S$ 23.3 billion.
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World Soybean Trade: A Long Term View

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Demand

Over the past nearly two decades, global soybean demand has outpaced other crops such as corn, cotton, rice, and wheat. According to figures from U.S. Soy, soybean demand has grown 229% during the 1990/91 marketing year to 2017/18 compared to 123% for corn, and 34% for wheat. Growth has been driven by growing demand for protein, and vegetable oil consumption for food. Much of the growth was driven by China. Soybean world per capita consumption averaged 43 pounds in 1990 and by 2010 that had nearly doubled to 81 pounds according to figures from US Soy. China’s per capita soybean consumption grew from just 19 pounds in 1990 to 110 pounds by 2010. By comparison, soybean per capita consumption in the United States grew from 304 pounds in 1990 to 344 pounds in 2010.

The growth momentum appears set to continue. Over 80% of imported soybeans are processed into animal feed in China. This is consistent with the world average with about 85% of the world’s soybean crop is used as animal feed. China, the world’s largest importer according to UN trade data, imports soybeans for its meat, poultry, and dairy industry which has been booming as Chinese citizens increasingly add more protein to their diets as incomes rise and living standards increase. China is on track to overtake the U.S. to become the world’s largest dairy market according to Euromonitor International, and currently is the world’s largest egg consumer and producer, and the world’s largest meat importer.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

Protein intake among Chinese citizens has been steadily growing reaching 96.7 grams per capita per day during 2011-2013 and has reached levels comparable to developed neighbors such South Korea (96 grams per capita per day). However, it has yet to reach levels comparable to other developed nations such as the United States (108.7 grams per capita per day), and Germany (101.7 grams per capita per day) suggesting room for Chinese soybean demand to grow.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

This is particularly true for animal protein which at 38 g/capita/day (3-year average) in China has not yet reached the levels of neighbors Japan (48 g/capita/day), and South Korea (46 g/capita/day), as well as developed nations such as the United States (69 g/capita/day), and Germany (61 g/capita/day).

At 45.7 kilograms per capita, China’s meat consumption per capita is higher than the world average of 34 kilograms per capita but has room to catch up with Asian countries such as Malaysia and Vietnam which have meat consumption per capita of 60.3 and 50.5 kilograms per person respectively.

Bar chart showing meat consumption per capita (beef and veal, pork meat, poultry meat, and sheep meat) for selected countries in 2019 (kilograms per capita). In 2019, meat consumption per capita stood at 34 kilograms per person worldwide, 100.8 kilograms per person in the United States, 89.7 kilograms per person in Australia, 62.6 kilograms per person in Russia, 60.3 kilograms per person in Malaysia, 50.5 kilograms per person in Vietnam, 45.7 kilograms per person in China, and 3.6 kilograms per person in India. Data from OECD Data and LD Investments analysis.

Chinese meat demand has pushed up meat imports over the past few years and China is the world’s largest meat importer. China’s growing appetite for imported meat should help drive EU soybean demand. As the world’s largest meat exporter, the EU has been a major beneficiary of China’s growing meat consumption which in turn helped push EU soybean imports; the EU is the world’s second largest soybean importer and the world’s largest importer of soybean meal which is used mainly as animal feed. With China driving global meat demand, soybean demand from the EU, the world’s second biggest importer, is poised to grow as well.

India also presents a tremendous growth driver. Incomes and living standards have been rising and India’s average protein supply is on a firm uptrend but is still about half of China’s suggesting ample room for growth.

Column chart showing the average protein supply in grams, per capita, per day on a 3-year average in China and India. During 2005-2007, average protein supply was 55 grams per capita per day in India, and 87.4 grams per capita per day in China. During 2006-2008, average protein supply was 56.7 grams per capita per day in India, and 89.1 grams per capita per day in China. During 2007 – 2009, average protein supply was 57.3 grams per capita per day in India and 90.8 grams per capita in China. During 2008 – 2010, average protein supply was 58 grams per capita per day in India, and 92.4 grams per capita per day in China. During 2009-2011, average protein supply was 58.7 grams per capita per day in India, and 93.7 grams per capita per day in China. During 2010-2012 average protein supply reached 59.3 grams per capita per day in India and 95.3 grams per capita per day in China. During 2011-2013 average protein supply reached 59.7 grams per capita per day in India, and 96.7 grams per capita per day in China.

A comparison between the meat markets in India and China are somewhat of an apples to oranges comparison; India is the world’s largest vegetarian market with more than 390 million vegetarians according to figures from Euromonitor International, India may not reach the ranks of other countries such as China and Australia in terms of meat consumption per capita in the near term. Vegetarians in countries such as India often abstain from consuming meat citing religious reasons (such as the moral concept of non-violence against all life forms) and thus meat affordability is not a concern. Hence, regardless of income growth and rising wealth, it is unlikely their diets will change to include any meat at all.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

However there is tremendous room for meat consumption growth among the non-vegetarian population. Vegetarians make up 30% of India’s population which leaves a meat consuming population equal to about two-thirds of India’s one billion plus population.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total population.

In fact, according to the results of a survey conducted by Indian Market research Bureau (IMRB), 73% of urban rich Indians are protein deficient, with 93% of them unaware about their daily protein requirements. With nearly 80% of Indian households expected to rise to middle income status by 2030, up from 50% today, the U.S. Soybean Export Council sees India as a prime export market in the future.

Supply

The top five largest soybean producers are the United States, Brazil, Argentina, China, and India.

Bar chart showing the leading countries in soybean production worldwide. During calendar year 2018-2019, the United States was the leading soybean producer in the world, producing 120.52 million metric tons, followed by Brazil with 119 million metric tons, Argentina with 55.3 million metric tons, China 15.97 million metric tons, India with 10.93 million metric tons, Paraguay with 8.85 million metric tons, Canada with 7.27 million metric tons, Ukraine with 4.83 million metric tons, and Russia with 4.03 million metric tonnes. According to preliminary figures for calendar year 2019-2020, Brazil was the leading soybean producer worldwide with 126 million metric tons, followed by the United States with 96.68 million metric tons, Argentina with 50 million metric tons, China with 18.1 million metric tons, Paraguay with 9.9 million metric tons, India with 9.3 million metric tons, Canada with 6 million metric tons, Russia with 4.36 million metric tons, and Ukraine with 4.05 million metric tons. Data from the United States Department of Agriculture Foreign Agricultural Service.

China, the world’s largest soybean importer and consumer is likely to remain a major import market in the years ahead. Domestic soybean production meets just about 20% of China’s domestic demand of about 100 million metric tons, and while there is potential for the country to increase domestic output by improving yields (particularly with the government reportedly making efforts to boost soybean production), this is unlikely to satisfy demand so the country will continue to depend heavily on imports going forward.

Even if China doubles its soybean production by doubling its yields to match the United States (China’s average soybean yield on the same area of land is about 40% that of the U.S. according to Heilongjiang Academy of Agricultural Sciences), China could potentially increase its production by about 15 million metric tons, which is not even one-fifth of China’s estimated 84 million metric ton soybean import volume during marketing year 2019/2020 according to data from the USDA.

India, the world’s fifth largest soybean producer, has been a consistent net exporter of soybeans but its net exports have been shaky as domestic production is outpaced by domestic demand.

Line chart showing India's net soybean exports from 2012-2018. India's soybean net exports were 45,413 metric tons in 2012, 100,908 metric tons in 2013, 195,003 metric tons in 2014, 197,340 metric tons in 2015, 84,557 metric tons in 2016, 219,425 metric tons in 2017, and 37,857 metric tons in 2018.

India became a net importer this year having imported some 114,000 metric tons from October 2019 to February 2020 according to USDA data. As incomes grow and protein intake increases, the country may well end up becoming a consistent net importer, unless they dramatically increase soybean yields; India’s average soybean yields on the same area of land is just 25% that of the U.S. according to data from the USDA.

Bar chart showing soybean yields in metric tons per hectare, for selected soybean producing countries, and world average. During crop year 2018/19, average soybean yields was 2.88 metric tons per hectare worldwide, 3.31 metric tons per hectare in Brazil, 3.4 metric tons per hectare in the United States,3.33 metric tons per hectare in Argentina, 2.39 metric tons per hectare in Paraguay, 2.86 metric tons per hectare in Canada, 1.9 metric tons per hectare in China, 2.91 metric tons per hectare in the European Union, 1.47 metric tons per hectare in Russia, and 0.96 metric tons per hectare in India. According to preliminary figures for calendar year 2019/20, average soybean yields was 2.75 metric tons per hectare worldwide, 3.41 metric tons per hectare in Brazil, 3.19 metric tons per hectare in the United States, 2.94 metric tons per hectare in Argentina, 2.8 metric tons per hectare in Paraguay, 2.61 metric tons per hectare in Canada, 1.95 metric tons per hectare in China, 2.87 metric tons per hectare in the European Union, 1.57 metric tons per hectare in Russia, and 0.78 metric tonnes per hectare in India.

That would leave current soybean export leaders Brazil, and the United States to continue dominating the soybean export market in the years ahead.

Bar chart showing the top five soybean exporting countries in the world in 2019. Brazil was the largest exporter with US$ 34.2 billion followed by the United States with US$ 16.7 billion, Paraguay with US$ 2.4 billion, Canada with US$ 1.7 billion, and Ukraine with US$ 0.8 billion.

The fragility of the U.S.-China relationship suggests Brazil is in a better position to capitalize on China’s soybean demand in the long term, presenting opportunities for Brazilian soybean suppliers. As of August 2020, Brazil accounted for 72% of China’s soybean imports so far this year, while imports from the U.S. accounted for just 21% which is an improvement from last year’s 15% but considerably lower than the 43% share pre-trade war. The long term impact of losing China as an export market for U.S. soybeans was abundantly clear when prior to the Phase 1 trade deal, the USDA’s long term projections for soybean planting in the U.S. expected only marginal increases and was not expected to recover to pre-trade war levels.

Line chart showing long-term projections for soybean planted acreage in the United States by the United States Department of Agriculture. The United States department of Agriculture projects soybean planted acreage in the United States at 90.1 million acres in 2017, 89.1 million acres in 2018, 82.5 million acres in 2019, 82.5 million acres in 2020, 83 million acres in 2021, 83.5 million acres in 2022, 84 million acres in 2023, 84.5 million acres in 2024, 85 million acres in 2025, 85 million acres in 2026, 85.5 million acres in 2027, and 85.5 million acres in 2028.

Agribusiness players ADM (NYSE:ADM), Bunge (NYSE:BG), Cargill, which buy crops from farmers, then transport, store and/or process the crops and sell the processed crops to food, feed, and energy buyers all have operations in Brazil and should benefit from improved South American export volumes as Chinese soybean imports grow along with rising protein demand.

In 2019, Cargill was the largest soybean exporter in Brazil followed by Bunge, ADM, and Dreyfus.

Bar chart showing Brazil's top soybean and corn exporters in 2019. In 2019, Brazil's leading soybean exporters were Cargill, Bunge, ADM, Dreyfus, Amaggi, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively. In 2019, Brazil's top corn exporters were Cargill, Bunge, Amaggi, ADM, Dreyfus, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively

On the domestic front, Brazilian grain trader Agribrasil expects revenues to more than double this year to 1 billion reais from 390 million in 2019 thanks to China’s voracious appetite for commodities such as soybeans and corn.

In the short term however, China will likely continue buying U.S. soybeans not just as part of the Phase 1 trade deal secured in January this year which helped end a nearly two year trade war between the two nations, but also perhaps to buy time as the country makes the necessary investments to cost effectively diversify its soybean sources in the long term, since top supplier Brazil may be unable to keep up with Chinese soybean demand. The opportunity in Russia is particularly compelling. Already the world’s second-largest wheat exporter, Russia has been vying for a greater share of China’s wheat imports and it is not a far stretch to envision Russia expanding its soybean production to capture a bigger slice of China’s soybean imports. Russian soybean exports to China have grown 51 times from just 15,000 metric tons in 2013/14 to 763,000 metric tons in 2018/19. Although this is less than 1% of China’s approximately 100 million metric ton soybean consumption currently, the long term potential is significant considering China’s top soybean producing region – Heilongjiang – is just across the China-Russia border from Russia’s top soybean producing region – the Amur region, which if developed could offer China soybeans at very cost effective prices with the added advantage that Russian soybeans are non-GMO (compared with the United States where 94% of US soybean acreage comprises GMO soybeans as of 2018). The expected completion of two new bridges over the Amur River (known as the Heilongjiang river in China) which borders Russia and China should greatly facilitate soybean trade between the two countries. With calls from China to set up a ‘soybean industry alliance’ with strategic partner Russia, it is highly likely Russia will continue to take greater share of China’s soybean imports going forward.

All is not lost for U.S. soybeans however. The EU is gradually phasing out palm oil for its domestic biodiesel use, and U.S. soybeans could be a beneficiary of this move. Accounting for 20.03% of the EU’s biodiesel feedstock mix, the EU consumed 2,640 million liters of palm oil in 2019 for biodiesel production according to data from the USDA. Soybeans’ share has grown from 7.83% in 2013 to 8.35% in 2019. Assuming the EU turns to soybeans to fill the void left by palm oil, soybean use for EU feedstock production could double.

Column chart showing EU biodiesel production by feedstock. In 2019, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 37.94%, followed by used cooking oil (20.86%), palm oil (20.03%), soybean oil (8.35%), animal fat (6.07%), sunflower oil (1.44%), and other oils such as pine/tall oil, fatty acids (5.31%). In 2017, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 44.18%, followed by used cooking oil (19.42%), palm oil (18.58%), soybean oil (6.52%), animal fat (5.58%), other oils such as pine/tall oil, fatty acids (4.45%) and sunflower oil (1.26%). In 2015, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 47.48%, followed by used cooking oil (17.80%), palm oil (17.36%), animal fat (7.64%), soybean oil (4.01%), other oils such as pine/tall oil, fatty acids (4.15%), and sunflower oil (1.56%). In 2013, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 51.37%, followed by palm oil (21.05%), used cooking oil (10.35%), soybean oil (7.83%), animal fat (3.78%), other oils such as pine/tall oil, fatty acids (3.01%), and sunflower oil (2.61%).

The reality however is that American soybeans will be fighting against EU-grown rapeseed, soybean, and sunflower oil for a chance at replacing the void left by the palm oil subsequent to EU phasing it out as a feedstock which indicates the opportunity for American soybean farmers looking to cash in on the EU opportunity will be smaller.

Nevertheless, it should still cushion the blow for companies such as ADM for whom soybean trading accounts for 16% of revenue with most of their origination from North America. In its latest annual report, ADM’s Ag Services and Oilseeds operating unit saw profit drop 4% which the company attributed to weaker North American grain margins and volumes, in part due to changing weather conditions and the U.S.-China trade tensions. Within the Ag Services and Oilseeds unit, Ag Services (which includes results from its origination business which buys grains from farmers) recorded a 23% drop in operating profit, compared with a 45% increase a year earlier.

The company benefited from China’s increased soybean consumption before the trade war and if Brazil replaces the United States as China’s leading soybean supplier or takes an increasing share of Chinese soybean imports, the EU could help partially fill in the void for U.S. soybean producers and traders such as ADM.

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Bright Prospects For China’s Cold Chain Logistics Sector

Column chart showing China's fresh food e-commerce market size, growth, and proportion of total fresh food market size. China's fresh food market was valued at RMB 43.6 trillion in 2015, RMB 47.3 billion in 2016, RMB 47.4 billion in 2017, RMB 49.5 billion in 2018, and RMB 51 billion in 2019. China's fresh food ecommerce market was valued at RMB 828 million 2015, RMB 1.324 billion in 2016, RMB 1.752 billion in 2017 RMB 2.424 billion in 2018, and RMB 2.888 billion in 2019. China's fresh food ecommerce market's sure of the country's overall fresh food market stood at 1.9% in 2015, 2.8% in 2016, 3.7% in 2017, 4.9% in 2018, and 5.66% in 2019. China's fresh food ecommerce market growth rate was 80.7% in 2015, 59.9% in 2016, 32.3% in 2017, 38.4% in 2018, and 19.1% in 2019. Data from Cushman and Wakefield.

China’s cold chain logistics market has been growing steadily over the past several years. According to management consulting firm L.E.K. Consulting, China’s cold chain market grew from RMB 81 billion in 2011 to RMB 181 billion in 2015 representing a growth rate of over 20% annually.

Column chart showing China's cold chain logistics market size (in RMB billions). China's cold chain logistics market was valued at RMB 81 billion in 2011, RMB 109 billion in 2013, RMB 181 billion in 2015, RMB 236 billion in 2017 (forecast), RMB 368 billion in 2019 (forecast), RMB 470 billion in 2020 (forecast).

Yet, there is still ample potential for growth. China’s cold chain logistics network currently represents a relatively small part of the overall logistics industry, with just about 19% of the Chinese market having access to cold chain technologies, compared to 85% in Europe and Japan. This explains why the cargo damage to fresh product (such as fruits and vegetables which accounts for the greatest demand for cold chain logistics services) within China’s cold chain is reportedly as high as 20% to 30% – which is considerably higher than the average 5% to 10% in developed countries.

Furthermore, the market for cold chain logistics is expected to be driven by consumption upgrades (for instance with regards to consumer expectations on product freshness and quality), and growing demand for agricultural commodities such as fresh fruits and vegetables, as a result of rising incomes and living standards.

Considering these growth drivers, market research firm Reportlinker, projects China’s cold chain logistics market to reach RMB 522.5 billion in 2025 from RMB 295.6 billion in 2018 representing a CAGR of 8.5% between 2018 and 2025.

Fundamental growth drivers: rising fresh produce demand along with increasing quality and freshness expectations as living standards rise, and an expanding fresh food e-commerce sector

Demand for cold chain logistics stems largely from five agricultural products including meat, aquatic products, quick-frozen foods, fruits and vegetables, and dairy products, among which cold chain for fruits and vegetables accounts for the greatest demand. With incomes growing and its middle class expanding, demand for such agricultural products are enjoying robust demand in China.

According to data from the China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce, and Animal By Products, in 2019 China imported approximately 6.83 million tons of fruit with a total value of US$ 9.5 billion, representing a year-on-year increase of 24% 25% respectively.
With China’s fruit exports amounting to 3.61 million tons at a value of US$ 5.5 billion in 2019, up just 4% and 14% year on year respectively, China is a net fruit importer and is likely to remain so, as per capita fruit consumption grows while economic policy focuses on high-tech industries and high-value manufacturing sectors.
Data released by the National Bureau of Statistics show that per capita consumption of fresh fruits among urban residents was 56.423 kilograms in 2018, up from 47.6 kilograms 2013. With per capita fruit consumption growing steadily, the Chinese Academy of Agricultural Sciences projects China’s fruit market will reach US$ 460 billion in 2024.

China’s growing interest in milk and dairy products is also poised to contribute to demand for cold chain logistics. China today is the second largest dairy market behind the United States, the third largest milk producer in the world, with about 13 million dairy cows up from just 120,000 cows in 1949.  The average dairy product consumption per capita has increased from almost just 6 kilograms in 1999 to 36 kilograms in 2019. Yet, there is plenty of potential with China’s per capita consumption of dairy products being half of the rest of Asia and less than one third of the world average according to Milk Quotient report published by the China Dairy Industry Association and Dutch dairy producer Royal Friesland Campina last month in Beijing.

China’s burgeoning fresh food e-commerce sector is expected to drive some of the demand for these products. China fresh food e-commerce industry has been growing steadily over the past few years; according to Euromonitor and Qianzhan Industry Research Institute, in 2019, China’s fresh food e-commerce market was valued at around RMB 288.8 billion up 19.1% 2018 when the market was valued at RMB 242.4 billion in 2018. Yet, with fresh food e-commerce accounting for just 5.6% of the total fresh food industry market in China in 2019, there is tremendous potential for growth.

Column chart showing China's fresh food e-commerce market size, growth, and proportion of total fresh food market size. China's fresh food market was valued at RMB 43.6 trillion in 2015, RMB 47.3 billion in 2016, RMB 47.4 billion in 2017, RMB 49.5 billion in 2018, and RMB 51 billion in 2019. China's fresh food ecommerce market was valued at RMB 828 million 2015, RMB 1.324 billion in 2016, RMB 1.752 billion in 2017 RMB 2.424 billion in 2018, and RMB 2.888 billion in 2019. China's fresh food ecommerce market's sure of the country's overall fresh food market stood at 1.9% in 2015, 2.8% in 2016, 3.7% in 2017, 4.9% in 2018, and 5.66% in 2019. China's fresh food ecommerce market growth rate was 80.7% in 2015, 59.9% in 2016, 32.3% in 2017, 38.4% in 2018, and 19.1% in 2019. Data from Cushman and Wakefield.

However, the bigger growth driver is from fresh food e-commerce’s need for cold storage warehouses closer to the consumer to enable cheap and fast delivery as opposed to the conventional notion that warehouses and distribution centers should be near ports and airports. Much of China’s cold storage warehouse stock is located in provinces with some of the world’s busiest ports. For instance, Liaoning which has the biggest warehouse stock by area in China is home to the Port of Dalian (the world’s 16th busiest port), Guangdong which has the 5th largest logistics warehouse stock is home to the Port of Guangzhou (the world’s 5th busiest port), and Shanghai which has the 11th biggest logistics warehouse stock in China is home to the Port of Shanghai (the world’s busiest port).

Bar chart showing China's cold storage logistics warehouse distribution by storage area (in square metres). The Province with the highest cold storage logistics warehouse by storage space area is Liaoning with 1.065 million square metres, followed by Henan with 1.059 million square metres, Sichuan with 684.9 thousand square metres, Jiangsu with 567.5 thousand square metres, Guangdong with 399.2 thousand square metres, Shandong with 387.3 thousand square metres, Shaanxi with 373 thousand square metres, Tianjin with 363.5 thousand square metres, Beijing with 282.9 thousand square metres, Hubei with 258.5 thousand square metres, Shanghai with 235 thousand square metres, Heilongjiang with 150 thousand square metres, Hebei with 132 thousand square metres, Hainan with 81.7 thousand square metres, Zhejiang with 80 thousand square metres, Hunan with 75 thousand square metres, Chongqing with 72,600 square metres, Fujian with 58,680 square metres, Guangxi with 49,850 square metres, Anhui with 49,218 square metres, Jiangxi with 40,000 square metres, Yunan with 36,000 square metres, Shanxi with 25,300 square metres, Guizhou with 12,000 square metres.

Opportunities in China’s fragmented cold storage warehouse market

Cold storage is a major part of the cold chain logistics industry; according to projections from L.E.K. Consulting, transportation, cold storage, and other services are expected to make up 40%, 30%, and 30% of China’s cold chain logistics market, respectively in 2020.

Currently cold chain storage represents a small part of China’s logistics warehouse stock; according to Warehouse In Cloud (WIC), China’s total cold storage logistics warehouse stock was about 6.65 million square meters in 2019, accounting for just 2.15% of the total logistics warehouse market. Along with the development of China’s cold chain industry, the market for refrigerated warehousing is poised to experienced solid growth.

China’s cold storage market is fragmented with the top 10 cold storage operators commanding a market share of around 21%. One of the country’s largest property developers China Vanke (HKG:2202), is a notable player in China’s cold storage space. The company purchased Swire Cold Chain Logistics from Swire Pacific (HKG:0019) in 2018, propelling Vanke into the ranks of China’s 10 largest temperature controlled-storage providers.

Under its logistics and warehousing Service Platform ” VX Logistic Properties”, has been aggressively acquiring and building its portfolio of high-standard warehouses, cold storage warehouses, as well as cold storage integrated logistics parks. In 2019, China Vanke served more than 850 customers, covering e-commerce, manufacturing, catering, retailing, etc. According to their 2019 financial results, the annual utilization rate of their cold storage warehouses stood at around 82% in 2019. China Vanke is also one of the consortium of investors that participated in the buyout of GLP, cheap the world’s leading logistics solution provider.

Another player worth watching is Alibaba (NYSE:BABA) whose logistics subsidiary Cainiao has been actively building distribution centers equipped with cold storage and delivery facilities to offer B2C cold chain logistics services, which are expected to grow along with the country’s growing fresh food e-commerce sector.
Alibaba’s cross-border ecommerce platform TMall Global offers end-to-end cold chain logistics services including warehousing, processing, packaging, and transportation enabling merchants from around the world sell fresh foods to Chinese buyers. Once in China, the goods are stored in TMall Global’s warehouses and are delivered to consumers within 24 hours.
Alibaba’s marketplace TMall Global has introduced a cold storage logistics option to enable foreign merchants to sell fresh food to Chinese buyers. The service supports refrigeration across warehousing, processing, packaging, and transportation. It also offers customs clearance online. Once the goods have reached China they can be delivered within 24 hours. Cainiao Logistics offers the full chain of services, from cargo storage in bonded warehouses, to packaging and last mile delivery.

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China’s Software-As-A-Service (SaaS) Market Offers Tremendous Growth Potential

A column chart showing China's cloud computing market size in billions of yuan. China's cloud computing market was valued at RMB 9.7 billion in 2015, RMB 17 billion in 2016, RMB 26 billion in 2017, RMB 41.3 billion in 2018 (forecast), RMB 60.8 billion in 2019 (forecast), RMB 84.3 billion in 2020 (forecast), and RMB 110.9 billion in 2021 (forecast).

The public cloud market is growing at a rapid clip around the world. The worldwide public cloud services market is projected to grow from US$ 182.4 billion in 2018 to US$ 331.2 billion by 2022 representing a CAGR of 16.08% according to research from Gartner. The fastest growing market segment is expected to be cloud system infrastructure services, also known as Infrastructure as a Service (IaaS) which is expected to grow from US$ 30.5 billion in 2018 to US$ 76.6 billion by 2022, representing a CAGR of 25.89%. The second fastest growing market segment is expected to be Cloud application infrastructure services, also known as Platform as a Service (PaaS), which is expected to grow from US$ 15.6 billion in 2018 to US$ 31.8 million by 2022 representing a CAGR of 19.49%. Meanwhile the market for cloud application services, also known as Software-as-a-Service (SaaS) is expected to grow from US$ 80 billion in 2018 to US$ 143.7 billion by 2022 representing a CAGR of 15.77%.

The story is the same in China where, much like the rest of the world, China’s cloud market has also been on an uptrend.

A column chart showing China's cloud computing market size in billions of yuan. China's cloud computing market was valued at RMB 9.7 billion in 2015, RMB 17 billion in 2016, RMB 26 billion in 2017, RMB 41.3 billion in 2018 (forecast), RMB 60.8 billion in 2019 (forecast), RMB 84.3 billion in 2020 (forecast), and RMB 110.9 billion in 2021 (forecast).

China’s IaaS market is the fastest growing cloud computing segment and is dominated by homegrown tech giants Alibaba (NYSE:BABA) and Tencent (HKG:0700). And although the country’s SaaS market has received relatively little attention compared to the IaaS segment, it is a significant part of China’s overall cloud computing market, being estimated to reach a market value of RMB 47.3 billion in 2020 which accounts for about 56.1% of China’s cloud market which is estimated to reach market value of RMB 84.3 billion the same year.

China’s SaaS market has been growing steadily over the past several years.

A column chart showing China software-as-a-service market size (in RMB billions). China's software-as-a-service market was valued at RMB 3.49 billion In 2013, RMB 5.98 billion in 2014, RMB 9.89 billion in 2015, RMB 12.75 billion in 2016, RMB 16.87 in 2017, RMB 23.21 billion in 2018 (forecast), RMB 33.7 billion) in 2019 (forecast), and RMB 47.34 billion in 2020 (forecast).

Yet, there is still ample potential for growth. China’s SaaS market is expected to reach approximately RMB 47 billion (US$ 6.7 billion) in 2020 according to Statista while the global SaaS market is expected to reach US$157 billion by 2020. This means China would account for just about 4% of the global SaaS market while accounting for about 16% of global GDP indicating ample potential for growth.
Furthermore, according to a 2019 report issued by Alibaba Cloud Research Center, while the number of Chinese companies is 3 times that of the United States, China’s SaaS output is just 24% of the U.S.

There are several growth drivers to support China’s SaaS market. Unlike in the west, a growing number of Chinese firms are not tied to legacy IT infrastructure and they are increasingly moving directly to the cloud, leapfrogging the traditional enterprise software generation in much the same way Chinese citizens leapfrogged the desktop/laptop phase and went straight to mobile. In the medium term, the COVID pandemic may prompt SMEs to accelerate cloud adoption to control costs, facilitate remote working, and online sales. Over the longer run, the industry is likely to enjoy tailwinds thanks to China’s made in China 2025 initiative which aims to upgrade China manufacturing base by developing high-tech Industries including electric cars, robotics, artificial intelligence, agricultural technology engineering new synthetic materials. Cloud computing is among the many technologies expected to drive this development (others include big data and IoT).

Opportunities for local and international SaaS companies

China’s higher end SaaS segment is largely dominated by foreign SaaS behemoths such as Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), and SAP (ETR:SAP) whose product offering often comes with a hefty price tag. Homegrown SaaS companies such as Kingdee (HKG:0268), Digiwin, and Yonyou (SHA:600588) on the other hand are not as powerful in terms of functionality compared their foreign counterparts, however their product offering has been improving in terms of sophistication and capabilities, and they are usually significantly cheaper which makes them a very compelling option to fulfill the needs of China’s Small and Medium Enterprises (which make up almost 99% of business establishments in China) as well as state enterprises. This has helped local SaaS providers carve out a niche for themselves in China’s nascent SaaS market while competing against foreign, well-established players.

The country’s SaaS market is highly fragmented the top 10 vendors accounting for only about 30% that the market as of 2018 according to research from PR Underground. Local rising star Kingdee dominated the market with a market share of just 5%, followed by Microsoft, SAP, Salesforce (NYSE:CRM), Oracle, Veeva Systems (NYSE:VEEV), Zoho, Beisen, Yonyou, and Newdo which collectively made up the top 10.

Pie chart showing the market share of China's SaaS vendors during the first half of 2018. Kingdee was the market leader with a 5.1% market share followed by Microsoft (5%), SAP (4.3%), Salesforce (4%), Oracle (3.8%), Veeva Systems (2.6%), Zoho (2.6%), Beisen (2.2%), Yonyou (2%), Newdo (1.8%), and others accounted for the balance 64.5%,

Many of China’s SaaS market verticals are also dominated by homegrown companies. Kingdee for instance, leads in HR, ERP, and accounting. Beijing-based Forceclouds, and Shanghai-based MacroWing lead in document and data management tools for the clinical research, pharmaceutical, and medical device industries. Beisen and DOIT provide CRM solutions in partnership with Tencent.

America boasts a number of SaaS behemoths; in one category America has born-in-the-cloud SaaS companies such as Salesforce, Workday (NASDAQY:WDAY), ServiceNow (NYSE:NOW), Splunk (NASDAQ:SPLK), and Atlassian (NASDAQ:TEAM); in another category there are established software giants with a growing cloud business such as IBM (NYSE:IBM), Oracle, Microsoft, SAP, and Adobe (NASDAQ:ADBE); and finally there are IT vendors with a growing SaaS cloud offering such as Google (NASDAQ:GOOGL) and Cisco. The world’s top three SaaS companies are American; Microsoft, Salesforce, Adobe with market shares 17%, 12%, and 10% respectively of in 2019 when the SaaS market reached US$ 101 billion according to analysis by Synergy Research.

Chinese SaaS companies on the other hand are still at a relatively early stage of growth. However, in much the same way America’s SaaS market growth spawned a number of homegrown SaaS giants, there is potential for Chinese SaaS companies to blossom along with the growth of China’s SaaS market. A notable example is Kingdee.

Kingdee

Kingdee is one of China’s largest providers of ERP software with a focus on SMEs, and is one of China’s leading SaaS players with a market share of 5%. Kingdee first started out as an ERP software company building a large user base of enterprise customers. This user base helped Kingdee’s cloud transformation, enabling it to introduce its own cloud products to its existing user bas

In FY 2019, Kingdee’s cloud services revenue grew 54.7% year-on-year accounting for 39.5% of revenue during the year up from 30.2% in 2018 according to their 2019 annual report. Cloud revenue’s share of total revenue is likely to increase going forward as traditional ERP customers migrate to the cloud. Traditional ERP systems are gradually being replaced by SaaS which is generally more cost-efficient and easier to use and manage compared to traditional ERP systems. Notable enterprises upgrading to Kingdee’s “Kingdee Cloud Cosmic” (a cloud platform for large enterprises) include one of China’s largest courier companies SF Express (SHE:002352), Chinese edtech unicorn VIPKid, and Chinese state-owned defense corporation Norinco. The company is targeting cloud revenue to contribute 60% to total revenue by 2020.

While it may seem that cloud can cannibalize Kingdee’s traditional software business, according to figures from its annual report, it is evident that this is not the case with much of Kingdee’s cloud growth being driven by new customers During FY2019, of Kingdee’s “Kingdee Cloud Galaxy” (a digital cloud service platform for medium and large enterprises, and fast-growing enterprises) customer base, 77% of clients were new to ERP, 13% were from competitors, and just 10% were existing clients.

Armed with a wide product range of cloud software spanning e-commerce, supply chain and intelligent manufacturing, a healthy balance sheet (the company’s borrowings stands at RMB 199 million while it has a cash pile of RMB 3.18 billion), a strong brand name among local SaaS companies, and an impressive user base of SMEs as well as large enterprises suggest Kingdee is well placed to capitalize on China’s growing SaaS market.

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Chinese EdTech Startups With Tremendous Growth Potential

Bar chart showing leading edtech unicorns worldwide in 2020, by valuation, (in US$ billions). The startups are ByJu’s (from India) valued at US$ 10 billion, Yuanfudao (from China), valued at US$ 7.8 billion, Zuoyebang (from China) valued at US$ 6.5 billion, VIPKid (from China) valued at US$ 4.5 billion, Udemy (from the United States) valued at US$ 2 billion, Coursera (from the United States) valued at US$ 1.7 billion, Duolingo (from the United States) valued at US$1.5 billion, ApplyBoard (from Canada) valued at US$ 1.4 billion, Course Hero (from the United States) valued at US$ 1.1 billion, Udacity (from the United States) valued at US$ 1.1 billion, and Quizlet (from the United States), Guild Education (from the United States), Knowbox (from China), iTutorGroup (fromm China), Zhangmen (from China), Huike (from China), 17zuoye (from China), Age of Learning (from the United States), and HuJiang (from China), valued at US$ 1 billion each. Data from HolonIQ.

Chinese edtech startups accounted for 50% of all global VC investment in edtech, during the period 2016-2018 according to market research firm HolonIQ.

Chinese have traditionally placed tremendous importance on education. The gaokao, China’s notoriously tough entrance examination, is known as one of the toughest exams in the world, and gaokao scores are now being increasingly accepted in universities worldwide for admissions purposes. The sheer competition for top schools, and jobs, is driving demand for tutoring Chinese parents spare no expense so it is not surprising that education is big business in China.

However, the distribution of quality educational resources to match demand for such resources is inconsistent; urban students generally have greater access to top-notch educational resources while their rural peers often do not.
Experienced, highly qualified teachers also tend to teach in urban schools while schools in lower tier cities generally grapple with lesser-experienced teachers, and some schools suffer shortages. But the problem is not just limited to urban vs rural educational resource distribution. Even within urban cities, the distribution of English teachers for instance is inconsistent, with some cities and schools being able to hire native English teachers while others struggle.

Online education is a feasible solution to these problems. Online education offers numerous other benefits as well. Lesson schedules can be made flexible, lessons can be customized to suit the student’s learning pace and existing knowledge, artificial intelligence and other technologies can be utilized to make the learning experience more fun,
and parents can be given updates on the child’s progress, and areas that need to be improved. VIPKid for instance, a leading platform connecting Chinese children with English tutors from North America provides progress data to parents such as what the child has learnt, and what needs to be improved.

With, more and more Chinese students having access to the internet, mostly through smartphones, and some others through desktop devices such as laptops and PCs, long-sighted edtech startups have been quick to capitalize on the opportunity of using the internet to bring forth a more even and equitable distribution of online resources to match demand which has been growing along with rising disposable incomes which enable a growing number of China’s ambitious tiger parents to shell out top dollar for online after-school supplemental education resources.
China’s after-school tutoring revenue has grown from RMB 2 billion in 2011, to RMB 3.9 billion in 2017, representing a CAGR of 11.6% according to figures from research firm Frost & Sullivan. The market is expected to reach RMB 5.6 billion by 2021, representing a CAGR of about 9% during 2017-2021.

This has helped spawn a vibrant edtech market, which has emerged to be one of the biggest in the world. Of the 19 leading global edtech unicorns, 9 are from China (eight from the United States, one from India, and one from Canada).

Bar chart showing leading edtech unicorns worldwide in 2020, by valuation, (in US$ billions). The startups are ByJu’s (from India) valued at US$ 10 billion, Yuanfudao (from China), valued at US$ 7.8 billion, Zuoyebang (from China) valued at US$ 6.5 billion, VIPKid (from China) valued at US$ 4.5 billion, Udemy (from the United States) valued at US$ 2 billion, Coursera (from the United States) valued at US$ 1.7 billion, Duolingo (from the United States) valued at US$1.5 billion, ApplyBoard (from Canada) valued at US$ 1.4 billion, Course Hero (from the United States) valued at US$ 1.1 billion, Udacity (from the United States) valued at US$ 1.1 billion, and Quizlet (from the United States), Guild Education (from the United States), Knowbox (form the China), iTutorGroup (form China), Zhangmen (from China), Huike (from China), 17zuoye (from China), Age of Learning (from the United States), and HuJiang (from China), valued at US$ 1 billion each. Data from HolonIQ.

Online education accounts for just about 10% of China’s overall education market according to Deloitte. However, as online learning gains acceptance, this share is expected to climb in the years ahead. The number of online education users in China is expected to climb to 263 million by 2022, up from 42 million in 2012 according to research from iResearch.

Column chart and line graph showing the number of online education users in China, 2012-2022 (estimate), (in millions of people). The number of online education users in China is expected to reach 263.7 million people in 2022, up from 42 million in 2012. Data from iResearch.

Here are some notable startups poised to grow along with China’s online learning opportunity.

VIPKid

Backed by tech giant Tencent (HKG:0700), VIPKid connects Chinese students (aged 4-15) and English teachers from around the world (predominantly North America). VIPKid has been a notable beneficiary of China’s demand for English language training for children; in 2018 the market was valued at RMB 21.3 billion (approximately US$ 3 billion), registering a 104% growth year-on-year. The number of users jumped a whopping 168% from 5.7 million in 2017 to US$ 15.3 million in 2018 according to a 2019 report from data monitoring firm Trustdata.

Founded in 2013, and launched in 2014, the startup was one of the first to capitalize on the shortage of native English speakers in China at the time. While taking advantage of what seems to be very strategic timing, VIPKid also established a strong brand for itself by building a reputation for maintaining high quality standards with all tutors undergoing a rigorous assessment before being accepted as VIPKid teachers (the startup reportedly receives about 20,000-30,000 teacher applications per month, and 90% of them are rejected).

This focus on quality, as well as its first-mover advantage, among other reasons helped VIPKid’s meteoric rise to unicorn status in less than five years. VIPKid boasts 700,000 students, 100,000 teachers, a student retention rate of 95%, and according to data in a 2018 Chinese Online Youth English Education white paper published by the Chinese Academy of Sciences, VIPKid has been noted as a market leader with a market share of 67.2%. According to a report by Trustdata, VIPKid held a market share of 68.4%, followed by 51Talk (11.6%), Da Da English (7.8%), and vipJr (5.7%) as of 2018.

Pie chart showing leading online English education platforms in China by market share (%) in 2018. VIPKid led the market with a market share of 68.4%, followed by 51Talk (11.6%), DaDa English (7.8%), vipJr (5.7%) and others (6.5%) according to figures from market research firm Trustdata.

English language training (ELT) is still very much in demand by parents of school-aged children in China; the ELT market is expected to grow from US$ 41.51 billion in 2017 to US$ US$ 75 billion in 2022, representing a CAGR of 12.56% according to Statista with much of that being driven by the online English education segment as noted in a research report by research firm Global Information Inc.

While demand is growing, the supply side on the other hand is not expected to keep pace. China has tightened regulations on teachers’ backgrounds and qualifications which may have the effect of smaller language schools struggling to recruit qualified foreign teachers.

This suggests plenty of runway left for VIPKid’s growth story. However, competition is increasing, particularly with online learning giants such as TAL Education and New Oriental Education rolling out their own online English education courses. Furthermore, VIPKid’s one-on-one classes are generally not as profitable as group classes so VIPKid, which has so far yet to turn a profit, may find itself struggling with greater losses as it fights for market share.

However, VIPKid has made efforts to differentiate itself, for instance all of VIPKid’s teachers are from North America ; by comparison, 69% of 51talk’s teachers are from Southeast Asia. Additionally, VIPKid is working to increase the efficacy of its teaching materials (such as syntax, vocabulary, accents etc) by utilizing its vast trove of data from the more than 2 million English classes it offers monthly. VIPKid has also taken its global model a step further by aiming to bring quality native speaking Chinese teachers to students overseas where demand for Chinese language education is growing in leaps and bounds. VIPKid has already gained some ground as an education platform in North America so the startup may find it easier to enroll overseas students compared to most of its rivals who have a very limited presence beyond China’s boundaries.

Makeblock

STEM education and robotics startup Makeblock develops hardware, software, and robotics hardware targeted at schools, educational institutions, hobbyists, children, and families. With a userbase of more than 10 million, Makeblock are sold in more than 140 countries, and its products are used in more than 25,000 schools around the world. The robotics education market is expected to witness tremendous growth in the coming years driven in part by schools’ continuing emphasis on STEM (Science, Technology, Engineering, and Mathematics) education. Market research firm HolonIQ foresees the global robotics education market to nearly triple to US$ 3.1 billion by 2025, from US$ 1.3 billion in 2019.

The market is riding on the back of a large and fast-growing robotics market in the Middle Kindgom; Chinese companies installed 154,000 industrial robots in 2018, more than double that of Japan’s 55,200 and more than triple that of the United States’s 40,400 according to the International Federation of Robotics. This strong performance helped China maintain its position as the world’s largest industrial robot maker for the sixth consecutive year, accounting for 36% of global robot installations. By value, China’s robot installations grew 21% year-on-year to reach US$ 5.4 billion in 2018. China’s robot density (the number of robots per 10,000 persons used in the manufacturing industry) has also been on an uptrend, growing from 68 in 2016, 97 in 2017, and 140 in 2018.

Bar chart showing the number of installed industrial robots per 10,000 employees in the manufacturing industry in 2016, by leading countries. At 631 industrial robot installations per 10,000 manufacturing sector employees, the Republic of Korea had the highest robot density in the world, followed by Singapore 488, Germany 309, Japan 303, Sweden 223, Denmark 211, United States 189, Italy 185, Belgium 184, Chinese Taipei 177, Spain 160, Netherlands 153, Canada 145, Austria 144, Finland 138, Slovenia 137, Slovakia 135, France 132, Switzerland 128, Czech Republic 101, Australia 83, United Kingdom 71, China 68, Portugal 58, Hungary 57. Data from the International Federation of Robotics.
Bar chart showing the number of installed industrial robots per 10,000 employees in the manufacturing industry, 2017. At 710 installed industrial robots per 10,000 manufacturing sector employees, the Republic of Korea had the highest robot density in the world in 2017, followed by Singapore (658), Germany (322), Japan (308), Sweden (240), Denmark (230), United States (200), Chinese Taipei (197), Belgium (192), Italy (190), Netherlands (172), Austria (167), Canada (161), Spain (157), Slovakia (151), Slovenia (144), Finland (139), France (137), Switzerland (129), Czech Republic (119), China (97). Data from the International Federation of Robotics.
Bar chart showing the number of installed industrial robots per 10,000 employees in the manufacturing industry, 2018. At 831 installed industrial robots per 10,000 manufacturing sector employees, Singapore had the highest robot density in the world in 2017, followed by the Republic of Korea (774), Germany (338), Japan (327), Sweden (247), Denmark (240), Chinese Taipei (221), United States (217), Italy (200). Belgium (188), Netherlands (182), Austria (175), Slovenia (174), Canada (172), Spain (168), Slovakia (165), France (154), Switzerland (146), China (140), Finland (140),Czech Republic (135). Data from the International Federation of Robotics.

Since 2017, China’s robot density has exceeded the world average.

Column chart showing China’s robot density (number of industrial robots per 10,000 employees in the manufacturing sector) vs world average. In 2016,2017, and 2018, China’s robot density was 68, 97 and 140, respectively while the world average was 74, 85, and 99 respectively. Data from the International Federation of Robotics.

China’s robot density is expected to continue its upward march in the years to come. With China’s robotics industry growing at a rapid clip, the need for skilled robotics professionals and talent will no doubt increase in the future, suggesting bright prospects for Makeblock.

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Malaysia’s Growing Digital Economy: Opportunities And Sectors To Watch

Bar chart showing usage of ICT tools and systems among Malaysian SMEs. 86.5% of Malaysian SMEs used desktop / laptops, 90.1% used internet connections, 91.4% used smartphones, 43.8% used e-commerce, 70.5% used social media, 50.2% used Finance & Accounting systems, , 28.8% used HR systems, 18.8% used POS systems, 14.5% used inventory systems, 12.5% used Customer Relationship Management (CRM) systems, 12.3% used supply chain management systems, 11.5% used order fulfillment systems and 10.5% used Enterprise Resource Planning (ERP) systems.

Malaysia’s digital economy, as defined by its government registered an average growth of 9% annually between 2010 and 2016 in value-added terms, exceeding Malaysia’s overall GDP growth rate during the period. In 2018, Malaysia’s digital economy grew 6.9% year-on-year to reach RM 267.7 billion, contributing 18.5% to the national economy (up from 18.3% in 2017) according to the Department of Statistics. Although the 2018 growth rate of 6.9% is lower than in 2017 when it grew 9.8%, it is still higher than the country’s overall GDP growth rate of 4.7% recorded for the year according to data from Bank Negara.

This growth momentum is likely to continue thanks to a combination of government support, a youthful, tech-savvy population, and increasing digitization of SMEs among other factors.

On the consumer front, Malaysia boasts favorable demographics to support its growing digital economy. Of Malaysia’s approximately 31 million population, about 42% are aged 24 years and below according to the CIA and the median age of the country’s population is 29.2. This compares with neighboring countries such as Thailand where the median age is 39, Singapore (35.6), and Vietnam (31.9). A relatively young population as well as high incomes have helped push Malaysia’s internet penetration rate to 85.7% as of 2018, which is higher than the approximately 60% penetration rate in the region.

On the enterprise front, large enterprises currently dominate Malaysia’s digital economy as they adopt digital technologies such as e-commerce at higher rates than SMEs, partly due to larger enterprises having greater access to funding and technical expertise. For instance less than 44% of Malaysian SMEs use e-commerce for their business according to data from a 2018 report by SME Corp.

Bar chart showing usage of ICT tools and systems among Malaysian SMEs. 86.5% of Malaysian SMEs used desktop / laptops, 90.1% used internet connections, 91.4% used smartphones, 43.8% used e-commerce, 70.5% used social media, 50.2% used Finance & Accounting systems, , 28.8% used HR systems, 18.8% used POS systems, 14.5% used inventory systems, 12.5% used Customer Relationship Management (CRM) systems, 12.3% used supply chain management systems, 11.5% used order fulfillment systems and 10.5% used Enterprise Resource Planning (ERP) systems.

However, government support (such as the government’s PeDAS program which is aimed at assisting rural SMEs reach a larger consumer base through e-commerce platforms) and a growing breadth of affordable digital enterprise solutions could spur Malaysian SMEs to shift towards digital applications in the future. With SMEs accounting for nearly 99% of Malaysia business establishments, their digital transformation could contribute significantly to the growth of Malaysia’s digital economy.

To add further impetus to Malaysia’s digital economy which is already riding high on strong fundamentals, the Malaysian government has put in place several incentives to encourage greater market expansion and is aiming for the digital economy to contribute 20% to the national economy by 2020, up from 17.8% in 2015.

Some of the incentives include:

  • A RM 210 million allocation under Budget 2020 for the purposes of accelerating the development of digital infrastructure such as industrial parks, and in public buildings such as schools.
  • RM 21.6 billion allocated under Budget 2020 for the five-year National Fiberization and Connectivity Plan (NFCP) which will ensure high-speed connectivity throughout the country along with an additional RM 250 million to increase broadband connectivity in rural and remote areas such as Sabah and Sarawak with technologies such as satellite technology.
  • Under the Malaysia National Industry 4.0 framework, the Industry4WRD Readiness Assessment Intervention Program or in short known as ‘Industry4WRD Intervention Fund’ was launched by the government in Budget 2019. It is a financial support facility for Malaysian SMEs in the manufacturing and related services sectors to adopt Industry 4.0 applications and technologies such as the Internet of Things (IoT), sensor technology, artificial intelligence, robotics, 3D printing and others.

With many tailwinds to support market expansion, the International Data Corporation (IDC) predicts that by 2022, 21% of Malaysia’s GDP will be digitized, up from about 18% currently.

Sectors and industries to watch within this burgeoning market include:

E-Commerce

E-commerce is one of the few verticals in Malaysia that is relatively ahead of the digitization race with the e-commerce sector alone contributing 8% to Malaysia’s GDP in 2018. Already one of the fastest growing e-commerce markets in Southeast Asia, there is still ample growth ahead with the sector expected to expand to nearly US$ 6 billion by 2024.

Column chart showing Malaysia’s e-commerce revenue, 2017-2024. Malaysia’s e-commerce revenue was 2,651 million in 2017, 3,030 million in 2018, 3,680 million in 2019, 4,337 million in 2020, 4,974 million in 2021 (estimated), 5,433 million in 2022 (estimated), 5,750 million in 2023 (estimated), and 5,995 million in 2024 (estimated.

B2C e-commerce has garnered the most attention contributing to the top-lines of online retails such as Lazada (owned by Alibaba (NYSE:BABA)), Shopee (owned by SEA Group (NYSE: SE), and Zalora (owned by Global Fashion Group (ETR:GFG)).

However B2B e-commerce is poised to catch up as SMEs jump into the e-commerce bandwagon. Alibaba looks set to capitalize on this growth opportunity having emerged as one of the most aggressive players in encouraging and facilitating Malaysian SMEs to adopt e-commerce to reach a global customer base. Under its eWTP (e World Trade Platform), Alibaba collaborated with the Malaysian government to launch the world’s first Digital Free Trade Zone (DFTZ) at Kuala Lumpur International Airport (KLIA) Aeropolis in 2017 to assist local businesses sell their products in overseas markets through online e-commerce, and position Malaysia as a regional e-commerce hub. And in April this year, Alibaba’s logistics arm Cainiao Smart Logistics Network celebrated the inaugural flight of a new dedicated cargo route between Hangzhou and Kuala Lumpur.

Electrical and electronics

Malaysia is a global electrical & electronics (E&E) hub, with major players such as Intel, Hewlett Packard, Osram, Broadcom, Western Digital, and Samsung having manufacturing and distribution operations in the country notably Penang. Malaysia’s E&E industry (which can be categorized into 4 sub-sectors namely electronic components, consumer electronics, industrial electronics, and electrical products) is the biggest segment in the country’s manufacturing sector. Malaysia is the world’s 7th largest E&E exporter and the E&E sector accounts for 38% of Malaysia’s exports.

As Malaysia’s digital economy grows, spurring greater demand for mobile devices, semiconductors, storage devices, and other hardware, Malaysia strong E&E industry is well-placed to satisfy demand and profit. Only 62% of businesses in Malaysia are connected to the internet, 46% have fixed broadband, and about 28% have a web presence of some kind according to the World Bank. This is lower than the EU average where 96% businesses are connected to the internet, 95% have fixed broadband, and 75% have a website.

In an effort to incentivize Malaysian SMEs to adopt digitalisation measures for their business operations including electronic point of sale systems (e-POS), Enterprise Resource Planning (ERP), and electronic payroll systems, the Malaysian government will provide a 50% matching grant of up to RM 5000 per company for subscription to such digital services under Budget 2020. The government will also allocate RM 550 million to provide smart automation matching grants to 1,000 manufacturing and 1,000 services companies automate their business processes.

Furthermore, the imminent launch of 5G technology in the country (expected by the third quarter of 2020) should add a further boost to the E7E sector thanks to the offering of 5G-compatible smartphones, tablets and other devices. Satisfying this growing demand for electrical and electronic components suggests revenue growth opportunity for local E&E players such as Inari Amertron Bhd (KLSE:INARI).

Although the country’s E&E sector has been hit by production shocks as a result of Covid-19, these blips are likely to be temporary and should recover in the long term as market fundamentals remain supportive.

Cloud services    

IDC projects Malaysia’s overall IT spending to be approximately US$ 11 billion in 2020, with much of that shifting to managed and cloud services.

Research firm GlobalData foresees Malaysia’s digital spending to reach US$ 25.2 billion by 2023 from US$ 16.5 billion in 2018 (representing a CAGR of 8.9% during the period). Much of that spending will be on client computing and cloud solutions.

Bar chart showing Malaysia's ICT market growth rate (CAGR) a leading 5 IT solution areas, 2018 2023. Mobility is expected to grow at a CAGR of 20.9%, cloud computing 19.1%, data and analytics 17.6%, storage 14.3%, outsourcing 10.1% during the forecast period.

By vertical, the manufacturing sector is expected to account for the lion’s share of ICT spend in 2023.

By vertical, the manufacturing sector is expected to account for the lion’s share of ICT spend in 2023.

Cloud adoption is largely concentrated among Malaysia’s larger enterprises while adoption among SMEs, (which accounting for 98.5% of Malaysian business establishments make up the backbone of Malaysia’s economy) is relatively low. However this is poised to change with the Malaysian government encouraging SMEs to adopt digital technologies such as cloud computing, thanks to favorable provisions in Budget 2020.

Yet again, Alibaba has made its moves in Malaysia with its cloud computing arm Alibaba Cloud partnering with local domain registrar WebNIC to tap into this relatively underserved market.