In China, nationalism sells. Months of a gruelling trade war with the US and geopolitical spats with Asian neighbours have stoked nationalistic fervour among millennials, who are flexing their spending muscle, splashing out on guo huo , or Made-in-China brands, at the expense of foreign icons. The trend helped propel sales of local companies including cosmetics maker Shanghai Jahwa United Co. and apparel manufacturer Bosideng International Holding, outpacing international brands like MAC and Canada Goose during the Singles’ Day online-shopping gala on November 11, amid trade tensions and boycotts. Dr Yu, a skincare business unit of the century-old Shanghai Jahwa, is one of the top names among the “patriotic” brands that Chinese consumers are gravitating towards to counter Western brands. The unit, whose products are co-developed with local doctors, saw a seven-fold increase in sales to 60 million yuan (US$8.6 million) in December. What drives Chinese millennial consumption? “The millennials are more faithful to Chinese brands which are capable of delivering equally good quality products like those from foreign powerhouses, if not better,” said Xue Ying, senior marketing manager of Dr Yu. “The younger they are, the stronger their sense of pride is. This is our chance” to grow our business quickly, she added. Some of China’s biggest companies now expect the wave of patriotism to have an enduring effect in fuelling sales in the coming years. Among them is Shenzhen-listed Three Squirrels Inc, which considers the makers of Oreo biscuits and Mars chocolate bars among its competitors. The country’s biggest snack food producer is banking on a growing base of mainland millennials – 415 million of them or 31 per cent of the population by one estimate in 2017 – to help lift its annual sales to 100 billion yuan over the next 10 years. Ever since President Donald Trump started the trade war in July 2018 by slapping punitive tariffs on Chinese goods to counter perceived unfair practices, the rise in patriotism has coloured China’s foreign policy responses, influenced domestic consumer behaviour and shaped some notable corporate decisions. At the same time, geopolitical spats between China and its Asian and Canadian partners have also sparked calls to boycott foreign goods. The show of military might during the National Day parade last October further entrenched the sentiment. Some foreign companies have been caught in the crossfire, undoing years of efforts to build their brands and presence in the mainland market. Versace and Coach, for example, triggered a backlash for “implying” Hong Kong was separate from China on their fashion products. Italian fashion house Dolce & Gabbana is still suffering from the fallout after a series of controversial adverts showing a Chinese woman struggling to eat pizza and spaghetti with chopsticks in 2018. It expected sales in Greater China to decline in the current financial year ending in March, according to a filing to Italy’s Chamber of Commerce in August. ‘Made in China’: how Wuhan coronavirus spread anti-Chinese racism like a disease through Asia Now the coronavirus outbreak is casting a pall on the economy, threatening to disrupt everything from travel to retail and tourism. The epidemic has claimed more than 200 lives and infected more than 9,000 people, mostly in mainland China. The health crisis is likely to have the largest negative impact on goods and services sectors within and outside China that rely on Chinese consumers and intermediary products, according to a Moody’s Investors Service report on January 30. While keeping its growth forecast at 5.8 per cent for 2020, the rating company said there is still a high level of uncertainty around the likely length and intensity of the outbreak that could alter its view as the situation evolves. While the Sars (severe acute respiratory syndrome) outbreak in 2003 did weaken growth and financial markets, the composition of the Chinese economy has changed 16 years on. Discretionary travel, transport, lodging, restaurants, retail and services sectors are likely to be affected. “The contribution of consumption to China’s economic growth has risen significantly,” Moody’s said. “Therefore, the impact of the coronavirus through the consumption channel may well be higher now.” Why ‘Made in China 2025’ triggered the wrath of President Trump Before the latest viral outbreak, Chinese home-grown brands had been chalking up gains. Since 2016, foreign brands have managed to grow their collective sales by 9 per cent, based on 26 categories of fast-moving consumer goods tracked by Bain & Co. Their Chinese rivals grew theirs by 15 per cent in that time. “Chinese consumer goods are expanding faster than their foreign competitors, and for sure the rise in pro-China sentiment has given them a boost,” said Derek Deng, partner in Shanghai at the global consulting firm. “More importantly, Chinese brands are no longer perceived by shoppers as inferior in quality or design. They are on par with fashionable foreign brands.” It did not come as a surprise to Shanghai Jahwa when the skincare manufacturer rang up 1 million yuan worth of sales within 60 seconds during the November 11 Singles’ Day event. Fairy Zhang, one of its online customers, tells a familiar story. The 20-year old Shanghai native bought several packs of Dr Yu’s facial masks before the Lunar New year, and shared her experience on the “Little Red Book” social-media platform by comparing the product with Japanese, Korean and American brands. “I find that most of our home-grown products like Dr Yu are already on par with so-called upscale foreign brands, so why not buy our own products?” Zhang said. “I only believe in good quality products and I think our products can compete on that front. I don’t quite agree with the older generation, like my mom and my aunts, who worship foreign brands.” Remember that ‘Chinese boycott’ of Canada Goose down jackets because of Huawei? Bosideng, the Chinese maker of down jackets, also received a lift in sales from the outpouring of support for home-grown brands. Its sales have rebounded and its share price almost doubled since its low-point in mid-2017 as a boycott of the Canada Goose brand took hold in the wake of the Huawei and Meng Wanzhou case. Other examples are aplenty. Perfect Diary, a cosmetics maker founded four years ago in Guangzhou, recorded 100 million yuan of sales within 13 minutes on Singles’ Day. China Feihe, endorsed by Chinese actress Zhang Ziyi, has taken on global players like Nestle and Danone to become the largest baby milk formula producer in the country. Its stock had climbed 23 per cent to HK$9.22 on Thursday from its listing in Hong Kong on November 13. Underneath the nationalistic undertones, Chinese manufacturers are also doing better than their rivals by adapting quickly to changing tastes among the nation’s young consumers, such as in the food industry, according to consulting firm McKinsey & Co. “Taste in mainland China has changed faster than anywhere else,” senior partner Daniel Zipser said. “Local brands are doing a good job of catching up with the fast-changing trend and staying connected and relevant to local consumers.” Three Squirrels, which sells titbits including nuts and fruits, seeds and dried pork, has built its recent success by knowing their eating habits and taste preferences better than its foreign-owned crisps and confectionery makers. It is also nimble enough to take new product ideas to full production within 40 days to catch changing market trends. “Foreign snack providers usually have a set of flavours and they rarely changed their line-ups on the shelves for a decade or longer,” said Yin Xiang, spokesperson of the Shenzhen-listed company. “On the contrary, we can feed our customers with new catchy products frequently. Young consumers get tired of one taste very easily and they are always interested in trying out new things.” It’s too late to stop China’s rise, so the West must start to question its own assumptions The deep antipathy towards the west could not have come at a more opportune time for Roman Li. The founder and chief executive of Heyshop runs a boutique focusing on emerging guo huo brands. He is betting on them to become the future driving force of China’s consumption growth. Li’s second shop on Yu Yuan road near Shanghai’s shopping belt opened last December, offering products from as many as 50 home-grown start-up companies involved in producing cosmetics, shoes, clothes, pet food, snacks and home decoration. His first, in Shanghai’s Xintiandi shopping district, generated 800,000 yuan of sales per month within a year of business. “Before, we saw two categories of goods being the usual bestsellers – foreign upscale brands sold at eye-popping prices and budget products sold on Taobao.com,” he said. “From now on, the fast-growing ones will be those reasonably-priced, good-quality niche-brands which are not yet widely discovered by consumers. Emerging national brands fit this perfectly.” Li is planning to bring his Heyshop concept to Shenzhen, and eventually to 100 cities across the mainland. He said he is driven by the shift in consumer behaviours over the past year. The support for home-grown brands is not a fleeting phenomenon, according to McKinsey, suggesting that western companies will require more marketing dollars and charm to retain or expand their own army of customers – or even to repair their reputation among the millennials. “This will not be short-lived, and will only continue,” said Zipser, the McKinsey partner. “People are buying Chinese brands because it is cool. Why is it cool? It’s not just because they are made in China, but because they are good.” Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.