The fate of the Starbucks Group is telling: Sales and profits in its current 7,300 stores in China are declining. The Chinese are not drinking less coffee, but prefer Chinese brands, partly because they offer more for less money.
Luckin Coffee, which was only founded in 2017, is rapidly taking market share from the American market leader. Even outside of China, such as in Singapore, Luckin Coffee stores are popping up everywhere and competing with Starbucks.
[Source: bloomberg.com]
Bloomberg reported that Luckin Coffee, and no longer Starbucks, is now the largest coffee retailer in China.
The turnaround of the company, which was on the verge of bankruptcy four years ago, is due to the chain’s automated stores, low-cost offerings and innovative drinks that cater to local tastes. In terms of volume, it offers the same amount of coffee, but at one-third the price of Starbucks.
Price comparison of the four major coffee restaurant chains in China. [Source: twitter.com]
Luckin Coffee is not the only thriving Chinese coffee company; another example is Manner Coffee, which has opened more than 1,000 stores in China. Of course, Luckin Coffee and Manner Coffee are just two examples from one industry.
Chinese coffee chain Manner. [Source: Photo courtesy of Felix Abt]
The same is happening in many other sectors. With increasing Sinophobia from the West, Chinese consumers are becoming consumer patriots who prefer Chinese products and services: In 2011, only 15% of Chinese said they would prefer Chinese over foreign brands; by 2020, 85% said they would prefer Chinese products. Given the increasingly anti-China policies and rhetoric, this proportion is likely to be even higher today.
McKinsey survey: Chinese people increasingly prefer Chinese products. [Source: medium.com]
“Sanctions” to contain China
Since 2016, the U.S. has imposed thousands of sanctions and other “penalties” against China. More than 70 Chinese technology companies have been targeted by Washington, and entire regions, such as the Xinjiang Autonomous Region, have been banned (by the U.S.) from exporting goods to the U.S.
Hundreds of Chinese government officials have been banned from visiting or communicating with U.S. companies.
Not only is the economic assault continuing, but it is being relentlessly intensified, with allies allowing themselves to be used by Washington against their own interests.
The unilateral coercive measures under Washington’s leadership were implemented with the intention of “containing” China and keeping it poor, rather than allowing it to rise again.
The Trauma of the Opium Wars
This brings back extremely bad memories in China: Before the Opium Wars against China under British leadership, which began the “century of humiliation,” China’s economy was strong and self-sufficient and had a trade surplus with European countries.
The forced import of opium led to a huge addiction catastrophe in China. [Source: commons.wikimedia.org]
The Chinese want to prevent the Western powers from imposing another century of humiliation on them at all costs.
Huawei became too strong for the West
Huawei is one of the companies that had to be destroyed. The world’s leading manufacturer of telecommunications equipment counted 80% of the world’s 50 largest telecommunications companies among its customers. Huawei sold its products in more than 170 countries.
A Huawei customer center. [Source: medium.com]
In order to eliminate this serious competitor for U.S. companies, the U.S. government ensured that Huawei no longer had access to foreign microchips and to Western and other markets. As a result, Huawei had to sell its leading computer and smartphone subsidiary Honor in 2020.
Denied access to key components such as chips, which are essential for the production of smartphones, Huawei decided to sell its cell phone business to a lesser-known Chinese company to ensure the survival of its successful product, as the buyer could operate without the same restrictions. This move was also intended to protect Honor’s suppliers, partners and employees and ensure that the brand could maintain its market presence and continue to innovate. In 2020, Huawei parted ways with Honor completely.
Huawei’s turnover and profitability slumped dramatically. Washington almost managed to drive Huawei into bankruptcy. However, like many other Chinese companies that the U.S. wanted to kill, Huawei has reinvented itself and resurrected itself as China’s most productive high-tech company. It is expanding into new sectors such as port automation and electric vehicles.
Huawei has recovered from the boycott by the U.S. and allied countries. [Source: koreaherald.com
Huawei, which is once again manufacturing laptops and cell phones using only Chinese components, is currently taking significant market share from Apple, which used to be highly profitable in China.
What the major Western media did not report, the Indian business and financial news service “ET NOW” did: Apple was defeated by Huawei in its largest overseas market.
Today, China accounts for 70% of Huawei’s revenue.
Huawei not only produces excellent products and services, but has also positioned itself as China’s national champion. Chinese consumers, who have been anxiously watching the economic assault by foreign powers on Huawei and countless other Chinese companies, sided with the “underdog,” recalling the centuries of humiliation China suffered at the hands of foreign powers in the not-too-distant past.
Decline and outflow of foreign investment
There are headlines all over the world about the exodus of investors from China. This is partly because foreign investors are afraid of being penalized by Washington. Even Tesla cars made in China and exported to the U.S. are now subject to high U.S. import taxes. Other products that foreign investors manufacture in China are also being targeted.
The withdrawal of foreign investment is not the end of China. It is merely a reaction to the weaponization of foreign investment and trade by the U.S. and, what is more, to the failure of Western companies in the Chinese market.
U.S. car manufacturers, which sold millions of cars in China every year and made billions of dollars in profits, are no longer competitive and are scaling back their investments.
The outflow of foreign investment from China reflects two things: the threat to foreign investment from U.S. anti-China policies and the loss of competitiveness of foreign investors in China. The increase in Chinese investment abroad reflects the increased competitiveness of Chinese companies, which are capturing more and more market share outside China, including market share from the same competitors that are losing out in China’s domestic markets.
China has the largest middle class (with substantial savings) in the world, which continues to grow, in contrast to the Western middle classes, which are shrinking and becoming increasingly indebted. There is still plenty of room for expansion for companies that cater to the needs of the Chinese middle class. But it would not be surprising if Starbucks were to leave China in the not-too-distant future. After all, it is what Western China hawks have longed and worked so hard for.
The affluent middle class has grown considerably in China and will continue to do so. [Source: medium.com]
It will do the U.S. little harm if its remaining companies lose the world’s largest market—measured in terms of purchasing power parity and not GDP. This is because the United States already has a large trade deficit with China and, unlike Japan, South Korea and the European Union, it is not a strong exporter.
But the U.S.’s allies will suffer a considerable economic setback if they support Washington’s tough anti-China measures. Chinese customers will no longer be well-disposed toward them. This will jeopardize the prosperity of their populations. China has the advantage that its growing domestic economy accounts for the lion’s share of its overall economy.
In the worst-case scenario, China’s economy could become self-sufficient and strong as it was before the Opium Wars.
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