SERVICES SECTOR
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China Economy

For China’s yuppies, getting fit’s a hit and they’ll pay to compete

Former underwear manufacturer cashes in on young wealthy Chinese people’s obsession with fitness as economy shifts towards services sector

PUBLISHED : Wednesday, 03 May, 2017, 8:03am
UPDATED : Wednesday, 03 May, 2017, 9:31pm

Li Zhiguang has run a Guangzhou underwear factory for two decades but now has his sights set on a whole new ball game.

The factory had 600 workers a decade ago but the workforce has now halved as rising labour and raw material costs threaten the survival of the labour-intensive business.

“A worker’s salary was about 800 yuan a month when I started my factory in 1998, now it’s 5,000 yuan (US$725),” Li said, adding that fierce competition limited his ability to charge more for underwear.

As his factory struggled with shrinking profit margins, Li, an amateur tennis player and a fan of Roger Federer, noticed that tennis was becoming increasingly popular among Guangzhou’s 14 million residents.

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Li decided to cash in on the trend last year by launching an all-comers tournament under the brand name Amateur Tennis Association (ATA). He rented 12 tennis courts, allowed anyone who paid a registration fee of 80 yuan to compete and offered products from his own factory and friends’ workshops as prizes.

It proved an instant success. The initial tournament attracted 200 players, mostly young office workers and university students but also some doctors and business owners.

Hundreds of similar private groups have now sprung up in the city.

Li said he had found the growth in the Pearl River Delta’s tennis-playing population “a bit shocking”.

“Middle-class and affluent Chinese are spending a growing amount of time and money on sports – being fit means a better life,” he said.

While the tennis tournaments have yet to generate a profit and he still relies on the underwear factory for his bread and butter, Li said he was confident about their profit prospects.

Li’s first volleys on the journey from underwear manufacturer to amateur tennis impresario are an example of a sea change that is reshaping the Chinese economy. A huge group of urban Chinese consumers is emerging, and they are tilting growth towards consumption and services.

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Mainland China’s middle-income population grew by 203 million people in the 10 years to 2011, according to a Pew Research Centre report. And a study by McKinsey & Company predicted that more than 75 per cent of urban residents – more than 550 million people – would be members of households earning between US$9,000 and US$34,000 a year by 2022, up from 4 per cent in 2000. An Economist Intelligence Unit report released in November predicted that more than a third of mainlanders would have more than US$10,000 in annual disposable income by 2030, up from about a tenth in 2016.

The growing consumer power those changes are generating is seeing sales of instant noodles fall and imports of Latin American avocados soar. Musty karaoke clubs are closing down in inner-city areas to make way for newly opened gyms and Chinese cinemas’ box office revenues have eclipsed those in America.

China’s services sector overtook the industrial sector as the largest contributor to economic growth in 2013 and according to official data it accounted for 61.7 per cent of economic growth in the first quarter of this year. Looked at another way, consumption contributed 77.2 per cent to growth, far exceeding capital formation and net exports.

“The rebalancing has been going quite rapidly in recent years,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “The share of the service industry in the overall economy has been rising steadily by about one percentage point a year in the past 10 years ... the pace has been impressive.”

In sports, the Chinese government has been ceding control to private investors. In the past, sports events were monopolised by regional, provincial and national governments intent on spotting potential medal-winners. Now the focus has shifted to having fun and making money.

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The State Council, China’s cabinet, issued a blueprint in 2015 that envisioned a sports industry worth 3 trillion yuan by 2020, increasing the sector’s share of the national economy to 1 per cent from 0.7 per cent.

Insurance salesman Mai Xu said he welcomed the chance to compete in Li’s tennis tournament.

“It is held regularly each month, and we can have lot of fun competing with various players and making friends,” he said. “In the past, individuals had little chance to attend sports events in China unless you were selected to be trained as an athlete for national or international contests. But now everyone with superior skills has the chance to be champion of a tennis tournament.”

He even sensed a business opportunity of his own and started offering coaching courses for other amateur tennis players.

“My workshop now has three coaches, my father, who’s a retired tennis athlete, a strong competitor I met in ATA and me,” he said. “We decided to attend more sports events across the country and win prizes. That will help build up the reputation of our coaching brand.”

Another player in Li’s tournament, 26-year-old Leo Tang from Dongguan, said he planned to start similar tournaments in his home town.

“I’m considering holding a tennis open in Dongguan, sponsored by my family’s property business,” Tang said, adding that he was willing to put down half a million yuan as an initial investment.

Chinese largely viewed tennis as a foreign sport until the 2000s, after first being exposed to the game through a popular shampoo commercial in the late 1990s that featured American tennis pro Michael Chang.

Yoga is another activity that has seen explosive growth in Chinese cities, with millions of young women joining yoga clubs, and Li said he was now planning a one-off yoga competition in Guangzhou for 1,000 contestants.

Long-distance running has also grown in popularity. China hosted 328 marathons last year, up from 10 in 2016, boosting the sales of sports shoe manufacturers from Nike to Asics.

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Meanwhile, Vango Sports, a company that offers fencing training and organises fencing competitions, has attracted 30,000 members in major cities such as Beijing, Shanghai, Guangzhou and Shenzhen and has listed its shares on China’s over-the-counter board.

Vango chief executive Tao Zhang said it planned to hold national fencing competitions and promote fencing in China, which would “lead to a big market for sports coaching and training”.

At the same time, there are still big questions about whether China’s consumer power can be fully unleashed to help the country evade the middle-income trap, a common problem in developing economies that sees economic growth fizzle after incomes reach a certain level. China’s overall savings ratio is still among the highest in the world.

“As income continues to rise, Chinese demand for entertainment and health will increase steadily,” said Liu Li-gang, the chief China economist at Citigroup.

But China would still have to make serious changes to social welfare, housing and income distribution to “reduce households’ precautionary savings motives”, Liu said.