Guoyuan International: Chinese consumer market under short-term pressure due to emotional impact, outbound enterprises focus on overseas production capacity and supply chain layout.

Guotai Junan International released a research report stating that there is still uncertainty as to whether Trump will ultimately fulfill his tariff policy. In the short term, for companies exporting overseas, market sentiment has a greater impact than fundamentals. For consumer goods companies with sufficient production capacity or supply chains overseas to meet US market demand, the impact of the US imposing heavy tariffs on China is relatively limited. Trump's election is expected to accelerate Chinese export-oriented consumer companies in deploying overseas production capacity and supply chains. At the same time, Trump's election is likely to accelerate the pace of domestic product substitution in the Chinese consumer market. In the long term, the increase in Chinese consumer purchasing power depends more on the recovery of consumer confidence and the development prospects of China's economy. Guotai Junan International's main viewpoints are as follows: Trump's more aggressive tariff policies may have a negative impact on Chinese consumer companies expanding overseas Trump's policy that has a significant impact on the Chinese economy is to achieve deglobalization through imposing tariffs. During the campaign, Trump claimed that he would significantly increase tariffs after taking office, raising tariffs on all imported products to 10%, and raising tariffs on products imported from China to over 60%. Once implemented, it will undoubtedly have a very large negative impact on Chinese consumer goods exports. However, the bank believes that there is still uncertainty as to whether Trump will ultimately fulfill his tariff policy, and in the short term, market sentiment has a greater impact than fundamentals for companies expanding overseas. For companies expanding overseas, the bank believes that the market needs to pay attention to the following three points: 1. It seems that Trump's more aggressive tariff policies towards China mainly target goods produced in China and exported directly to the US (such as Chinese household appliances). Therefore, the bank assesses that the impact of the US imposing heavy tariffs on China is relatively limited for consumer goods companies (such as POP MART, SHENZHOU INTL, MNSO, etc.) with sufficient production capacity or supply chains overseas to meet US market demand. Of course, if the US government decides to raise global tariff collection rates, it will have a certain impact on all consumer goods expanding overseas. 2. Trump's election will accelerate Chinese export-oriented consumer companies deploying overseas production capacity and supply chains. Since overseas production, labor, and procurement costs are generally higher than domestic costs, and production efficiency is lower than domestic costs, the increase in overseas production capacity or supply chain ratio may have a negative impact on the short-term profit margins of consumer companies. 3. The bank believes that if Trump adopts a phased, selective approach to imposing tariffs after taking office to reduce the negative impact on the US economy, those categories with a higher dependence on China may experience a smaller impact in the initial stage of tariff imposition, while those with a lower dependence may experience a greater impact. Therefore, the bank judges that exports of food and beverages and tobacco products may be affected earlier, while the short-term impact on exports of toys and textiles and apparel products may be relatively small. Trump's election is expected to accelerate the pace of domestic product substitution in the Chinese consumer market Trump's policy of reducing corporate taxes for domestic companies in the US favors the performance of domestic companies, thereby benefiting the performance of the US capital market. In addition, the Republican party's administration is expected to relax regulations on the capital markets. These two factors may lead to short-term capital flowing more towards the US. In addition, the intensified tariffs on China's exports to the US, the bank believes, may put pressure on the RMB in the short term. In this context, the demand for outbound tourism may decrease, while the demand for domestic tourism is expected to increase further. In addition, the demand for imported goods in China may weaken, and the pace of domestic substitution in some consumer industries (such as cosmetics, baby powder) is expected to accelerate further. Short-term market sentiment may be under pressure, but long-term prospects still depend on the recovery of consumer confidence Trump's main policies (including increasing tariffs and cutting corporate taxes) may lead to a resurgence of inflation pressure in the US. Therefore, the bank believes that Trump's election may lead to a slowdown in the Fed's interest rate cut process, limiting further room for China to relax monetary policy. This may lower market expectations for the recovery of Chinese consumer purchasing power and confidence in the short term, putting pressure on market sentiment. However, the bank believes that in the long term, the increase in Chinese consumer purchasing power depends more on the recovery of consumer confidence and the development prospects of China's economy.