Issue 33- On Chinese Shoppers, Data Breaches, and Rural Demand

Issue 33- On Chinese Shoppers, Data Breaches, and Rural Demand

In today's Finshots brief, we will discuss

  • How the Chinese government is trying to keep domestic consumption within the country
  • The huge data breach at BigBasket
  • Why Indian businesses are focusing on rural consumers

Economy

China Looks Inwards

China was the first country to be afflicted by the rapidly spreading coronavirus. It was also the first country to get back on its feet - both in terms of the pandemic and economic recovery.

During the third quarter of 2020, China’s economic output grew by 4.9%, making it the only major economy to show positive growth in this perfect storm of a year. But even though the country’s outlook seems positive, the virus is likely to leave some lasting damage. Take consumer spending for instance. Despite wage growth recovering to 70% of pre-pandemic levels, retail sales have been down. And as citizens grapple with financial uncertainty, household savings have spiked by 13.9% in September over the same period last year.

So, to propel its economy forward, the Red Dragon needs to encourage consumers to loosen their purse strings and spend money on things they may or may not need. And just as importantly, they need to ensure that a bulk of this money is spent within the country.

You see, Chinese consumers together spend a whopping $111 billion a year on luxury goods, cornering over a third of the global luxury goods market. But according to consultancy Bain and Co, about two-thirds of these purchases are made abroad. All this shopping either happens when Chinese tourists travel to destinations like the US and Europe, or through students or travellers who buy branded goods on behalf of shoppers on the mainland. But now, because of the pandemic, all this cross-border shopping has now diminished, dealing a heavy blow to companies like LVMH and Moncler SpA.

And the thing is, most high-end shoppers are unlikely to go back to their old habits even when the pandemic has abated. According to Bain and Co., over half of China’s luxury goods purchases will happen domestically by 2025 compared to one-third last year. One reason for this is that the coronavirus has highly exacerbated racism against Chinese people. And then there’s the fact that the Chinese government is making concerted efforts to keep domestic spending in-house.

The latest push from them came last month. Beijing instituted that foreign travelers coming to the country would have to get tested for the coronavirus three times, and then isolate for two weeks in a hotel room chosen by the government.

And with this masterstroke, the government is restricting international shopping, as well as keeping new infections under control. Because this measure isn’t just deterring foreigners from visiting the country, but also citizens who want to travel internationally. After all, nobody would want to come back home and spend 14 days in a shoddy hotel, would they?

Anyway, the prospect of fewer Chinese shoppers is really scaring luxury houses like Balenciaga, Montblanc, Prada, and Miu Miu, forcing them to expedite plans of establishing a significant presence on the mainland. As, Jean-Marc Duplaix, chief financial officer of Gucci-owner Kering SA said in April," the trend of more spending within China will push us to reconsider our store network. It will lead to a clear re-shuffling of the distribution.”

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Business

The BigBasket Data Breach

Back when the pandemic induced lockdowns started, thousands of families across India turned to online grocery shopping in order to meet their daily needs. As a result, BigBasket saw an 84% increase in new customers, and a 50% higher retention rate compared to pre-pandemic levels.

And now, a lot of these consumers’ data may be at risk. According to a recent report by cybersecurity firm Cyble, BigBasket suffered a data breach on 14th October, because of which personal information of 20 million users is now being sold on the dark web.

As per Cyble’s claim, the data included extensive details such as full names of customers, their email IDs, password hashes, pin, contact numbers, full addresses, date of birth, location, and IP addresses. All this information has been put up for sale for $40,000.

On its part, BigBasket has complained to the Cyber Crime Cell in Bangalore, where the startup is based. It is also working with cybersecurity experts to evaluate the extent of the damage and the authenticate Cyble’s claim. However, the online grocery store is convinced that financial data of its users is still secure. So at least there's that.


Economy

Rural Demand to the Rescue

As the Indian economy continues to be swept downwards due to low demand, diminishing income and rampant joblessness, there is one sector that is paddling against the current - Farming.

The nationwide lockdowns hardly affected production in the agricultural sector. In fact, the production of food grains sown in the monsoon season is estimated to hit a record 144.5 million tons. The government has also been focusing on rural employment during the pandemic and raising the support prices of certain crops. And as a result, the incomes of farmers and laborers have stayed relatively strong during this period. This has caused business-people and policymakers to hope that rural demand could be an engine of economic recovery.

And this hope isn't unfounded. Tractors and farm equipment sales have gone up, pent-up demand for bikes and scooters has pushed up automobile sales in rural areas, consumer goods sales have spiked, construction activities are gathering pace, and some farmers are even ramping up investments in gold.

But while this seems like a very positive space for India’s economy, there is another side to the story. You see, some experts contend that there’s a limit to which these markets can be tapped. According to them, recovery in the rural markets alone will not be sufficient to propel growth in the entire country. Urban areas are also significant contributors, and for things to get back on track, a speedy recovery there will be necessary, too.


What else happened?

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-Written by Vedika Agarwal and Akshay Tater.