"Recently, at the 'Serious Reading' event during the Hong Kong study tour on the Victoria Harbour cruise, we were fortunate to invite Mr. Song Xiangqian, the Founding Partner and Chairman of Harvest Capital, to share his unique insights on 'China's New Consumption Market in the Era of Great Changes.'

As a prominent figure accompanying top-tier consumer companies in China, Song Xiangqian expressed that the future of Chinese consumption is undoubtedly entering a golden age, destined to give rise to super brands and marking the ascent of China's consumer market into a golden era."

Serious Reading: In the post-pandemic era, many people are very optimistic about the consumption sector. Currently, our country has entered the fourth consumption era. What is the most significant characteristic of the fourth consumption era?

Song Xiangqian: Indeed, after the pandemic, both the Chinese economy and consumption are facing recovery. However, this recovery is probably not as strong as most people imagine, called a restorative rebound or economic recovery. The force of recovery is not as strong as imagined, the stability is not as stable, and the intensity is not as great.

The future trend of Chinese consumption and the Chinese economy still requires more coordination of macroeconomic policies, including the release of economic elasticity and resilience. As you may know, China is in the process of transitioning from the third consumption era to the fourth consumption era. China has not yet reached the fourth consumption era today.

In the transition from the third consumption era to the fourth consumption era, there will be some structural changes in China's consumption, and some slow variables will affect the development of Chinese consumption, affecting the way of supporting people's lives in society and the economy. For example, the current family structure, the birth rate is getting lower and lower, and the total fertility rate is only around 1.2.

In this case, the number of young people is getting fewer and fewer, coupled with many people not getting married, getting married less, getting married late, and not having children. Then the population has changed from the standard three-person family to only 2.6 people. One man, one woman, half a child, and a pet. A three-person family is no longer the standard Chinese family norm. Therefore, facing such structural changes in the future, Chinese consumption faces very significant challenges.

At the same time, in this process, we also found that the per capita income in China needs to be increased, and China has truly entered an era where it needs to implement a plan for doubling national income. Therefore, effective demand management will be a very important issue. Only by managing expectations and stimulating effective demand, allowing the per capita disposable income of the people to gradually and sustainably increase, can Chinese consumption have hope, and China's characteristics can be truly activated."

Serious Reading: You just mentioned that in the post-pandemic era, the rebound of the consumer market is not as rapid as imagined. For entrepreneurs, they may still face some opportunities and challenges. What do you think entrepreneurs need to pay the most attention to?

Song Xiangqian: It is essential to recognize the real environment of economic development, which I call 'dig deep, accumulate widely, and advance slowly.' Clearly see the challenges, pressures, and opportunities facing future economic development in China.

The first thing is to survive; I think staying at the table is winning. In this process, companies need to strengthen management, enhance operations, maintain cash flow, and seize every seemingly less powerful recovery and rebound with targeted actions. I believe this is very, very important.

The second important point is to foresee the future and act accordingly. Because the development of the Chinese economy to this day is not about having abundant resources and putting them in simple elements to achieve economic growth; it requires a more refined and scientific management revolution. In this process, higher demands are placed on entrepreneurs.

So entrepreneurs must maintain lifelong learning because they face greater challenges.

The third thing I think is important is that in the past 40 years, you could run a business by focusing on pulling the cart without having to look up because the economy was growing rapidly. However, the future is a time of sensitive cycles. Therefore, understanding the economy, comprehending macroeconomics, demanding progress in management science, and understanding cycles become crucial. Planning ahead and taking action is a lesson that businesses must learn."

Serious Reading: In the past, you have invested in a series of well-known consumer brands such as Dongpeng Beverage, Laoxiangji, Laiyifen, Wenheyu, and others. In the investment process, what aspect of these companies do you value the most?

Song Xiangqian: The most important thing is that these companies can address livelihood issues. We mainly focus on essential, high-frequency, and livelihood-related consumption, capturing Chinese consumption with infrastructure capabilities, Chinese brand consumption, and investments in large-scale enterprises.

We also believe that in the future, with the transformation and upgrading of the economy amid economic downturns, and the need for Chinese-style modernization, there may even be a development pattern similar to Japan's balance sheet recession. In this process, as investors and entrepreneurs, we need to seize the basic needs of 80% of Chinese people, which account for 80% of their needs, including essential, high-frequency, and livelihood demands.

So, you will see that we have invested in many companies, such as Jinmailang, Laoxiangji, Babimantou, and Dongpeng Specialty Drink. These products are basically essential, high-frequency, and livelihood-related, meeting the basic needs of 80% of Chinese people. I believe there is nothing bigger than the business of eating, drinking, playing, and having more opportunities, better development elasticity, and space.

Serious Reading: In recent years, many companies investing in consumer goods focus more on the young middle-class group, thinking that they will become the main driving force for future consumption growth. Do you think middle-class consumption may become the most significant trend in the future?

Song Xiangqian: Understanding the cycle, the environment of economic development, the trend of future economic development, and having judgment are crucial for consumer goods investment in China. In the theory of cycles, consumer goods investment plays a very important role.

The first is to understand the cycle, the environmental situation of economic development, and the impact of some super-long slow variables in China's economic and social development, which will greatly affect investment logic. So now many people are focusing on the middle-class giants. Personally, I think China's population of 1.4 billion is the world's largest market and the largest unified market. However, China is indeed a country with uneven distribution of purchasing power because the Gini coefficient is as high as 0.47-0.48.

We have a dumbbell-shaped society, large at both ends and small in the middle. The middle class is not that large; when we talk about 100 million or 200 million middle class, different definitions and positioning of middle class income by different organizations lead to different ranges of the middle class. More importantly, China's middle class is because of property; many of us are pseudo-middle class or so-called soft middle class. Excluding property, the actual disposable income is low.

China's middle class ranges from 100 million to 200 million, 200 million to 400 million, and we do need to cultivate more middle class. But the core of cultivating the middle class is not relying on property income but on disposable cash flow. Continuous improvement in per capita disposable income, allowing the next generation to live better than the previous generation with a higher quality of life, will maintain the prosperity of a society with high aspirations."

"Secondly, China is a unified large market with a population of 1.4 billion, but the distribution of per capita income in China is not so even, and everything is dynamically balanced in the midst of change. Therefore, China is actually a country with the most developed tiered economy, equivalent to one hundred million people forming a circle.

So, you will see that although there is Taobao and Tmall, there is still Pinduoduo today. Even 20 years later, Pinduoduo will repeat the story of Taobao. Although there is Amazon, Costco, and Sam's Club, there are still simple large-scale stores and discount stores. Due to the purchasing power of 1.4 billion people, the development of a tiered economy is a very important characteristic of Chinese society. Only by understanding China, understanding the development of China's tiered economy, the uneven distribution of purchasing power, and the characteristics of a dumbbell-shaped society, can you capture the true pulse of China's future economic development and the real heartbeat of China's socio-economic fluctuations."