CNBC Newsletter China Connection: Revisiting China’s spending decline

This report is taken from this week’s CNBC The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

Foreign investors have a hard time understanding whether China can achieve the kind of returns that once seemed guaranteed, especially in the volatile world of consumer brands.

This warning was made abundantly clear at the Milken Institute Asia Summit in Singapore last week: with a population of 1.4 billion, China’s potential consumer demand remains too large to ignore – but increasingly difficult to read.

Chinese families have They tightened their beltsCutting back on unnecessary spending and becoming, as some investors describe it, “spoiled” by an abundance of high-quality goods sold at steep discounts.

However, one venture capital firm is testing these doubts — and attracting attention while doing so. Founded in 2016, Black Ant Capital has been dedicated to China’s consumer landscape and has quietly backed some of the most talked about consumer games in China since as early as 2017: Pop Mart, Laupo Gold and budget snack retailer BusyMing Group.

pop mart, The company behind the blind box craze in Chinaits market capitalization now stands at HK$344.4 billion (US$44.2 billion). Jewelry maker Laopu Gold organized an amazing rally This year, it has risen nearly 17 times its listing price to reach a market capitalization of $15 billion. BusyMing is poised to become the latest company in BA Capital’s portfolio set to go public in Hong Kong.

It is clear that despite its low profile, the company has attracted the attention of global investors.

BA Capital manages three RMB-denominated funds and one US dollar fund. The four funds have outperformed most of their regional peers, according to a company spokesperson, ranking first among 479 private equity and venture capital funds in emerging Asia markets surveyed by Cambridge Associates as of the end of the first quarter.

in Milken summitBA Capital co-founder David He attracted a crowd almost as soon as he exited the stage — investors and executives eager to trade business cards and pleasantries, hoping for an insight into his thinking, and perhaps a chance to participate in the company’s impressive returns streak.

Earlier that day, I met him, who also serves on the Bob Mart board, at a coffee shop a short walk from the Four Seasons Hotel, where the Milken Institute was held this year. Over coffee, he explains that China’s consumer story is not over yet – it is simply changing and becoming more interesting for those who know where to look.

This interview has been translated and condensed for clarity.

What first attracted you to invest in Pop Mart?

That was the emotional drive behind PopMart toys. As children, we all sought comfort through games, and this instinct does not fade with age. We simply project that need onto other things — pets, hobbies, even decor. The appeal of the Pop Mart lies in its design and presence in intimate spaces, on desks or bedside tables, providing a sense of companionship and familiarity that deepens over time.

What consumer trends have fueled Pop Mart’s rise – and what fuels its success?

Today’s young consumers are drawn to things that make them feel connected and emotionally satisfied. They are willing to spend on something that sparks joy, something they can grow attached to.

Pop Mart has capitalized on this trend. The company is distinguished by its talented designers who create emotionally resonant and timeless characters, and its merchandising team, who keeps those characters relevant through new experiences and interactions.

What are the takeaways for other Chinese brands?

For brands in the mid-to-high-end segment, especially those looking to expand overseas, they need to set their sights on the US market early and fully enter. The United States remains the most important market with the greatest spending power and cultural influence.

What’s next for Pop Mart?

The demand for its toys, which provide companionship or style, will always be there. The key is to nurture each intellectual property and find new ways to connect with consumers — better products, richer content, and more immersive experiences, from exhibitions to theme parks. Anything that deepens this feeling of interaction will maintain its relevance.

What about Laopu Gold, what explains its success?

Laupo’s rise reflects two powerful shifts among Chinese consumers: a decline in consumerism, and a cultural shift toward local luxury.

During the pandemic, global luxury brands have lost many middle-class customers, but the desire for quality and value remains. Consumers wanted premium products that could maintain their values, such as gold jewelry that looked beautiful and was durable. At the same time, there has been a wave of pride in traditional Chinese culture, fueled by national confidence and cultural awareness.

In an era of cautious spending, Laopu Gold offers something special – jewelry that blends Chinese aesthetics, modern design and fine craftsmanship.

Where do you see Laopu going from here?

As it adapts to new markets, OPPO will retain its oriental identity. Like Italian brands that look modern but remain unmistakably Italian at heart, Laupo will evolve while remaining firmly rooted in its East Asian heritage.

What do you see in budget snack chain BusyMing?

Low prices have dominated the Chinese consumer market since 2022, and are likely to continue, especially in sectors where further cost reductions can be achieved through enhanced efficiency. Furthermore, we have seen stronger spending power in lower-tier cities in recent years.

Where do you see the next wave of consumer growth?

China’s spending power remains strong, and there is a growing fascination with products inspired by Chinese culture, an emerging but very strong trend among local consumers. Furthermore, we are seeing a growing interest in self-care and emotional well-being – what I call “emotional healing.” The feminist movement is also gaining strength.

What about technology-related plays?

We’re spending more time looking at consumer electronics – not the technology itself, but how innovation translates into products that meet consumer demand. They include autonomous vacuum cleaners, drones, and smart home appliances.

BA Capital has backed several brands, such as Oladance, a Chinese headphone maker, Tenways Electric Bikes, and Yarbo, which produces autonomous snow blowers.

How does BA Capital position exit options?

About 80 to 90% of our exits came through IPOs. While we see increasing potential for industry consolidation and M&A opportunities, we do not view it as a primary exit route. Investing with mergers and acquisitions in mind is the wrong place to start – you won’t be able to find the best companies this way. We aim to invest in the best players, and for them, an IPO is the natural path.

— CNBC’s Penny Chen contributed to this report.

The World Bank raised its growth forecast for China to 4.8% despite the US trade tensions. the New expectations This was part of an overall increase in forecasts for East Asia and the Pacific, bringing the outlook closer to Beijing’s official target of Growth of about 5% For the year 2025.

BYD sales rose in September in the UK Chinese electric car manufacturer BYD Sold 11,271 cars In the United Kingdom last month, representing 880% year-over-year growth. Sales have taken its annual total to just over 35,000 in the country, making the UK its largest market outside China.

Preliminary figures for the Golden Week holiday indicated a slowdown in consumer spending. Average daily domestic passenger flights, retail sales and restaurant revenues rose at a much slower pace than the Labor Day holiday in May, according to Nomura Bank. The number of cross-border flights in the first six days of the eight-day holiday also remained below pre-pandemic levels.