Blue Lotus Research Institute

Andy Fu

China growth and global non-US Internet equities

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Thematic (Sector/Industry)

<ul>
<li>Consumption subsidies in China has been muted in the 2020-2024 period, compared to practices in 2009-2012. We believe it reflects different thought of Chinese government at these two times;</li>
<li>Past data has suggested that consumption subsidies are effective. We expect consumer subsidies of ~RMB 50bn to be issued in C2H24 to revive consumption;</li>
<li>An even bigger consumer stimulus of ~RMB 200bn might be issued in 2025, and we believe a consumption tax reform might be one the permanent fixes for the purpose.</li>
</ul>


Consumption subsidies in China has been muted in the 2020-2024 period, compared to practices in 2009-2012. We believe it reflects different thought of Chinese government at these two times;
Past data has suggested that consumption subsidies are effective. We expect consumer subsidies of ~RMB 50bn to be issued in C2H24 to revive consumption;
An even bigger consumer stimulus of ~RMB 200bn might be issued in 2025, and we believe a consumption tax reform might be one the permanent fixes for the purpose.


How to Stimulate China's Consumption, Part IV：Consumption Voucher Is Effective

<ul>
<li>Beijing launched the use of medical social insurance (MSI) via online payments, marking MSI payable among all the 1st tier cities in China. But the policy only covers non-prescription;</li>
<li>However, the progress for the online penetration of MSI payment was still slow, reaching only 3.6% of all MSI capable pharmacies and 0.8% of all pharmacies in China;</li>
<li>The reason for the slow adoption is the vested, interlinked interests among local public hospitals, local MSI administrators and public security concerns over drug disbursement.</li>
</ul>


Beijing launched the use of medical social insurance (MSI) via online payments, marking MSI payable among all the 1st tier cities in China. But the policy only covers non-prescription;
However, the progress for the online penetration of MSI payment was still slow, reaching only 3.6% of all MSI capable pharmacies and 0.8% of all pharmacies in China;
The reason for the slow adoption is the vested, interlinked interests among local public hospitals, local MSI administrators and public security concerns over drug disbursement.


Despite Many Years and Efforts, Insurance Covered Online Pharmacies Still Only 0.8-3.6% of Total

<ul>
<li>As Chinese population ages, healthcare is a major source of consumption. Yet we are the most pessimistic for it to become a pillar of consumption;</li>
<li>Low healthcare spending in China is achieved by underpaying doctors and nurses. Enhancing life quality, instead of only curing disease, can meaningfully improve consumption; </li>
<li>However, consumer healthcare begets a larger and more common economic phenomenon, which is underpricing. The issue of underpricing stems from low compliance cost, in our opinion.</li>
</ul>


As Chinese population ages, healthcare is a major source of consumption. Yet we are the most pessimistic for it to become a pillar of consumption;
Low healthcare spending in China is achieved by underpaying doctors and nurses. Enhancing life quality, instead of only curing disease, can meaningfully improve consumption; 
However, consumer healthcare begets a larger and more common economic phenomenon, which is underpricing. The issue of underpricing stems from low compliance cost, in our opinion.


How to Stimulate China's Consumption, Part III

Equity Bottom-Up

Luckin Coffee Inc. provides non-alcoholic beverages. The Company offers various types of coffee. Luckin Coffee serves customers in China.

<ul>
<li>Luckin launched lemonade drinks with raging success of 5.08 mn cups sold for the first week, ~10% of store sales. Market cheered to send the stock higher;  </li>
<li>We view it with mixed feelings. While it is margin accretive and sales enhancing,  is not conducive to improving coffee penetration and cultivating consumers' habit for drinking coffee;</li>
<li>We see Luckin as increasingly one of, instead of the, street drink company, because lemonade is actually the top selling SKU of all milk tea vendors in China. </li>
</ul>


Luckin launched lemonade drinks with raging success of 5.08 mn cups sold for the first week, ~10% of store sales. Market cheered to send the stock higher;  
We view it with mixed feelings. While it is margin accretive and sales enhancing,  is not conducive to improving coffee penetration and cultivating consumers' habit for drinking coffee;
We see Luckin as increasingly one of, instead of the, street drink company, because lemonade is actually the top selling SKU of all milk tea vendors in China. 


Luckin's Small Step into Non-Coffee Drinks Is a Big Step of Its Future Directions

<ul>
<li>Aging population, coupled with under-development of retirement pensions, is the major headwind against enhancing consumption; </li>
<li>The headroom of urbanization as a driver for enhanced consumption is not as big as depicted;</li>
<li>Residential housing has, over the years, become the social safety net for the Chinese. Therefore, the bust of the property market takes many years, if not decades, to heal. </li>
</ul>


Aging population, coupled with under-development of retirement pensions, is the major headwind against enhancing consumption; 
The headroom of urbanization as a driver for enhanced consumption is not as big as depicted;
Residential housing has, over the years, become the social safety net for the Chinese. Therefore, the bust of the property market takes many years, if not decades, to heal. 


How to Stimulate China's Consumption, Part II

Independent Insight Provider, Blue Lotus Research Institute

Mr. Andy (Hongyao) Fu is responsible for Consumer, Travel, Social Service, SaaS coverages at Blue Lotus. Prior to joining Blue Lotus, Andy worked at Evalueserve as a research associate, covering the China Internet sector. He received his master's degree in University of New South Wales and bachelor's degree (with Honours) in Victoria University of Wellington.

Andy Fu
Independent Insight Provider
• Blue Lotus Research Institute

How to Stimulate China's Consumption, Part IV：Consumption Voucher Is Effective

China's consumption subsidies have been quite conservative but actually effective. We expect more subsidies in 2H24 and far more in 2025. We...

Blue Lotus Research Institute

Despite Many Years and Efforts, Insurance Covered Online Pharmacies Still Only 0.8-3.6% of Total

Beijing introduces online payments for medical social insurance, but slow adoption due to vested interests of the state healthcare complex and...

Blue Lotus Research Institute

How to Stimulate China's Consumption, Part III

China's healthcare system is supply efficient, which leads to underpaying the healthcare professionals' service but overmedicates. To change,...

Blue Lotus Research Institute

Luckin's Small Step into Non-Coffee Drinks Is a Big Step of Its Future Directions

Luckin's Lemonade drinks are a short-term profit boost, but may not sustain due to lower quality. Luckin's pursuit of me-too SKU is worrisome to us.

Blue Lotus Research Institute

How to Stimulate China's Consumption, Part II

The underdevelopment of China's pension system leads to reliance on the residential property market as social safety net. The headroom of...

Blue Lotus Research Institute

How to Stimulate China's Consumption, Part IV：Consumption Voucher Is Effective

​China's consumption subsidies have been quite conservative but actually effective. We expect more subsidies in 2H24 and far more in 2025. We...

Blue Lotus Research Institute

Despite Many Years and Efforts, Insurance Covered Online Pharmacies Still Only 0.8-3.6% of Total

​Beijing introduces online payments for medical social insurance, but slow adoption due to vested interests of the state healthcare complex and...

Blue Lotus Research Institute

How to Stimulate China's Consumption, Part III

China's healthcare system is supply efficient, which leads to underpaying the healthcare professionals' service but overmedicates. To change,...

Blue Lotus Research Institute

Luckin's Small Step into Non-Coffee Drinks Is a Big Step of Its Future Directions

​Luckin's Lemonade drinks are a short-term profit boost, but may not sustain due to lower quality. Luckin's pursuit of me-too SKU is worrisome to us.

Blue Lotus Research Institute

How to Stimulate China's Consumption, Part II

The underdevelopment of China's pension system leads to reliance on the residential property market as social safety net. The headroom of...

Blue Lotus Research Institute

China's consumption subsidies have been quite conservative but actually effective. We expect more subsidies in 2H24 and far more in 2025. We...

Beijing introduces online payments for medical social insurance, but slow adoption due to vested interests of the state healthcare complex and...

Luckin's Lemonade drinks are a short-term profit boost, but may not sustain due to lower quality. Luckin's pursuit of me-too SKU is worrisome to us.