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BofAGLOBALRESEARCHBofASECURITIE

ChinaConsumer(H/A)

IsChinastillunder-consuming?Mythvs.truth

IndustryOverview

Statsspeak!ChinaisNOTthatunder-consuming

InvestorsbelievinginChina’sunder-consumptionmaystruggletoexplaintheweaknesssince2022,thoughChinaisstilloneoftheworld’sfastestgrowingmajoreconomies.

Inourview,nominalvaluecomparisonsonlytellpartofthestory.Ourquantitativestudyrevealstwofacts.1)China’spercapitavolumeconsumptioniscomparabletoglobal

peers,notonlyingoodsbutalsoincoreservices.Counter-intuitively,ChinaexceedstheUS,JapanandSouthKoreainpercapitaconsumptionofproteins,eggs,seafoodand

vegetables.China’spercapitaresidentialfloorspaceisabovemanydevelopedcountries.

2)Theunder-consumptionperceptionstemsfromlowpricing(forstructuralandcyclicalreasons)andlaggingdiscretionaryservices.China’spricingisbelowtheglobalaverageinmostcategories(esp.forservices)andcanbe<40%oftheUSinmanycases.

Macroview:someupside,thoughnotthatseeminglybig

AnotherargumentinfavorofChina’sunder-consumptionpointstoChina’shousehold

consumption/GDPofc.40%,<theUS(68%),Japan(54%)andSouthKorea(48%).Inourview,developedNorthAsiaisabetterpeertoChina.Addingc.7%fromsocialtransfersinkind(goods&servicesprovidedbythegovernment,e.g.socialsecuritybenefits)to

alignwithOECDdefinitionsbringsChinaalmostonparwithSouthKoreaandnarrowsthegapwithJapan.Thatsaid,therecouldstillbesomeupside,particularlyinhigher-

qualityandexperience-basedservicesorgoods.Thisincludescategorieslikepreventivehealthcare,leisure,entertainmentandpursuitof“dopamineconsumption”.

CorporateChina:E2SGopportunities

NarrativesofalreadyhighvolumesyetlowpricesmaypaintaseeminglygloomypictureforCorporateChina.Wedonotthinkso.Theeraofbeta-drivengrowthisgone,but

“E2SG”alpha-growthopportunitiesstillabound.Byourdefinition,E2SG=Efficiency,Experience,Service&Global.Efficiencymeanslowestcost/fastestspeedinalow-

pricingenvironmenttowinshares.ExperienceandServiceenablepenetration

upside/sharegainsorjustifypremiumpricing.Lastly,goingglobalisaviableoption,iftheglobalmarketoffersbettervolumesandpricingthanChina.

Universeofsinglestocks:ourcross-sectorpicks

Top-downanalysismaycorrespondtosinglestocksacrosssectors.Hence,inpartnershipwithoureconomists,BofAChinaConsumer,Internet,Gaming&Lodging,TechandAutoteamsjoinhandstogether,topickstocksfittingintoE2SGthemes.Ourthematicpicks

includePopMart,Midea,Geely,HWorld,T,TencentandDamai(seeourDamaiinitiation).Thesenamesnormallytick2-3boxesof“Efficiency,Experience,Service&Global”.Thoughsomemayfacenear-termissues(suchastoughcompsforMideain1H26),webelievetheyarelong-termwinnersleveragingstructuralE2SGopportunities.

>>Employedbyanon-USaffiliateofBofASandisnotregistered/qualifiedasaresearchanalystundertheFINRArules.

Referto"OtherImportantDisclosures"forinformationoncertainBofASecuritiesentitiesthattakeresponsibilityfortheinformationhereininparticularjurisdictions.

BofASecuritiesdoesandseekstodobusinesswithissuerscoveredinitsresearch

reports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictof

interestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Refertoimportantdisclosuresonpage42to45.AnalystCertificationonpage36.PriceObjectiveBasis/Riskonpage34.

24November2025

Equity

China

Consumer

EquityResearchChenLuo,CFA>>ResearchAnalyst

MerrillLynch(HongKong)+85235082009

chen.luo@

MingHsunLee,CFA>>ResearchAnalyst

MerrillLynch(HongKong)+85235085006

minghsun.lee@

AlexLiu>>

ResearchAnalyst

MerrillLynch(HongKong)+85235085090

alex.liu3@

JoyceJu>>

ResearchAnalyst

MerrillLynch(HongKong)+85235083371

joyce.ju@

RonaldLeung,CFA>>ResearchAnalyst

MerrillLynch(HongKong)+85235083728

ronald.leung@

HarryZhuang>>ResearchAnalyst

MerrillLynch(HongKong)+85235087998

harry.zhuang@

AliceMa>>

ResearchAnalyst

MerrillLynch(HongKong)+85235088752

alice.ma@

JonasYang>>ResearchAnalyst

MerrillLynch(HongKong)+85235085834

jonas.yang@

FionaLiang>>ResearchAnalyst

MerrillLynch(HongKong)+85235084390

fiona.liang3@

Economics

AnnaZhou

China&AsiaEconomistMerrillLynch(HongKong)+85235083909

anna.zhou@

HelenQiao

China&AsiaEconomistMerrillLynch(HongKong)+85235083961

helen.qiao@

SeeTeamPageforListofAnalysts

Relatedresearch

ChinaConsumer(H):Newvs.Old

Consumption:imbalanceamidstagnation11August2025

BofAGLOBALRESEARCH

2ChinaConsumer(H/A)|24November2025

Contents

ChinaisNOTthatunder-consuming4

Highvolumes,especiallyingoods5

Extremelylowprices-directpricing7

Extremelylowprices-spendingquality11

Macroview:someupside,butnotthatseeminglybig12

Discretionaryandpremiumservicestounlockpotential13

CorporateChina:E2SGopportunities14

MappingChinaintoconsumercycles14

E2SG=Efficiency,Experience,Service&Global16

Efficiency16

Experience17

Service17

Global19

Universeofsinglestocks:ourcross-sectorpicks20

PopMart20

Midea22

Geely24

HWorld26

T28

Tencent30

DamaiEntertainment32

ResearchAnalysts46

BofAGLOBALRESEARCH

3

ChinaConsumer(H/A)|24November2025

Exhibit1:China’spercapitavolumeconsumptionishighamongglobalpeers,butitspricingisbelowtheglobalaverageinmostcategories–partlyduetoitsstatusastheworld’sfactory,aswellascyclicalandstructuralreasons.AlthoughChinaisnotthatunder-consuming,thereisstillsomeupsidefrom

quality&experience-basedservicesorgoods(2024,unlessotherwisenoted)

China’shighconsumptionandlowprices:driversandfutureupside

Source:Wind,FAO,OurWorldinData,Statista,WorldBank,Euromonitor,NUMBEO,Marklines,Bloomberg,ChinaIOL,CCCME,Omida,Leadleo,Shanghaimunicipalgovernment,BofAGlobalResearch.Protein,calories,

andvegetablesarebasedon2022data.

BofAGLOBALRESEARCH

BofAGLOBALRESEARCH

4ChinaConsumer(H/A)|24November2025

ChinaisNOTthatunder-consuming

ChenLuo,CFA>>

MerrillLynch(HongKong)

chen.luo@

AnnaZhou

MerrillLynch(HongKong)

anna.zhou@

IsChinastillunder-consuming?Ifyes,howcanweexplainwhyChinaconsumptionhasbeenunderpressureinrecentyears,thoughChinaisstilloneofthefastestgrowing

majoreconomies?Webelievecommonly-usednominalvaluecomparisons(suchasthefollowingexhibit)onlytellpartofthestory.

Exhibit2:ConsumptionshareofGDP&percapitaconsumptioninChinaarelowerthanthoseintheU.S.,Japan,andS.Korea

Percapitavalueconsumption:Chinavs.developedmarkets

Intl$Percapitafinalconsumptionin2022(US$)

Percapitafinalconsumptionin2022(intl$,adjustedbyPPP)%ofconsumption/GDPin2023(RHS)

80%

60%

40%

20%

0%

50,000

40,000

30,000

20,000

10,000

0

68%

54%

48%

40%

44,38349,422

23,893

25,549

15,705

19,534

4,6488,600

China

SouthKorea

Japan

UnitedStates

Source:CEIC,Worldbank,ESRI,BofAGlobalResearch

BofAGLOBALRESEARCH

Inourview,China’s“under-consumption”issuehasbeenexaggerated.OurdetailedquantitativestudysuggestsbothhighvolumesandlowpricesforChina.

?Highvolumes.China’spercapitavolumeconsumptioncanbecomparabletoor

evenexceeddevelopedmarketsinvariouscategories(especiallyforfoodandmanystaples).AnevenmoreshockingfindingisthatChina’sservicecategories,

especiallycoreservices,arealsonotthatunder-developed,thoughthereisstillroomforimprovement.

?Lowprices.Theperceptionofunder-consumptionismoredrivenbylowprices,

whichisevidentnotonlyingoods,butmoresoinservices.China’slowpricescanbeattributabletobothcyclicalissues(deflation,etc.)andstructuralissues(Chinaastheworld’sfactorywithunparallelsupplychainsthatcouldnotbereplicated

elsewhere,strongcompetitionanddisruptiveinnovationsinsupply,distributionandmedia,andgovernmentpriceregulationsinsomeservices).

Ourreportoffersadeep-diveanalysisoftheabovethesis,andseekstofindinvestmentopportunitiesintheuniverseofsinglestocksagainstthemacrobackdrop.Nowlet’s

moveon.

BofAGLOBALRESEARCH

5

ChinaConsumer(H/A)|24November2025

Highvolumes,especiallyingoods

Firstthingfirst,keydatafromFAO

WecompareChinawiththeUS(biggestconsumptioncountryindevelopedmarkets),Japan&SouthKorea(developedNorthAsiawithsimilarculturesandhabitstoChina)andtheglobalaverage.ThekeydatasourceisFAO(FoodandAgricultureOrganizationoftheUnitedNations),togetherwithothers.

Exhibit3:Chinaexceedstheglobalaverageinmostgoodscategories(especiallystaples).Comparedwithdevelopedmarkets,Chinaenjoyshighvolumeconsumptioninstaples(especiallyfood),whereasdiscretionarycategoriesmayseesomeupside

Percapitavolumeconsumption:Chinavs.theU.S.,Japan,SouthKoreaandtheglobalaverage(2024,unlessotherwisenoted)

China/China/China/China/

USJapanS.KoreaGlobal

UnitChinaUSJapanS.KoreaGlobal

GDPpercapitaUS$11,830.666,022.036,238.333,690.411,428.518%33%35%104%

GDPpercapita(adjustedby

Overall*PPP)Intl$21,499.472,679.347,395.849,777.921,795.530%45%43%99%

ConsumptionpercapitaUS$4,648.044,383.019,534.315,705.16,453.310%24%30%72%

Consumptionpercapita

(adjustedbyPPP)Intl$8,599.849,421.925,548.823,893.412,307.117%34%36%70%

Calorieskcal/day3,453.93,875.02,670.13,444.22,942.9!89%129%100%117%Proteing/day128.5121.693.8110.090.7106%137%117%142%

Eggg/day59.843.154.134.528.4139%110%173%210%

Staples*Meatg/day191.8333.5164.1228.6120.958%117%84%159%

Seafoodg/day114.060.5123.2152.654.9189%92%75%207%

Dairyg/day86.9625.0168.885.9224.414%51%101%39%Vegetableg/day1,117.9344.9315.8621.9403.9324%354%180%277%

Apparelpcs/year21.889.437.132.922.924%59%66%95%

Footwearpcs/year2.35.61.82.81.941%127%83%123%

Desktopsunit/10002.915.12.810.73.019%104%27%97%Laptopsunit/100011.776.432.427.914.015%36%42%84%

Tabletsunit/100015.1125.726.728.715.412%57%53%98%Televisionsunit/100023.0102.046.951.224.723%49%45%93%

DiscretionaryMobilephonesunit/1000197.0388.3214.0265.0154.351%92%74%128%

Airconditionersunit/100031.425.979.058.014.7122%40%54%214%

Fridgesunit/100035.640.348.446.423.588%73%77%152%WashingMachinesunit/100025.939.436.330.917.666%71%84%147%

Autounit/100022.346.635.731.510.148%62%71%221%EVunit/10007.74.60.92.92.1166%875%268%372%

Source:Wind,FAO,OurWorldinData,Statista,WorldBank,Euromonitor,CPCA,KAMA,NADA,CoxAutomotive,BofAGlobalResearch.GDP,consumption,andstaplecategoriesarebasedon2022data.

BofAGLOBALRESEARCH

Goods:aboveglobalaverage,orevenabovetheUSinsomecategories

?ChinaexceedstheglobalaverageinMOSTgoods(esp.staples).Indiscretionary,

ChinaisalsoaboveoronparwiththeglobalaverageforALLcategories.Comparedwithdevelopedmarkets,Chinaenjoyshighvolumeconsumptioninstaples

(especiallyfood),whereasdiscretionarycategoriesmayseesomeupside.

?COUNTER-ITUITIVEFACT:ChinaexceedstheUS,JapanandSouthKoreainpercapitaproteinconsumption.WhiletheUSleadsChinainmeatconsumption,eggs,seafoodandplant-basedproteinsmakeupfortheshortfall,sothatanaverage

ChinaconsumesmoreproteinthantheUScounterpart.Inaddition,China’spercapitavegetableconsumptionisseveraltimesabovedevelopedmarkets.

?DairyisoneoffewfoodcategoriesinwhichChinasignificantlylagsdeveloped

markets.However,consideringChina’shighproteinconsumption,weguessChineseconsumershaveamorevarietyofproteinsources,whichreducesthedemandfor

milk.It’salsointerestingtonotethatChina’spercapitadairyconsumptionisonparwithSouthKorea,andbothcountriesdonotconsumeasmuchcheeseasJapan

(cheeseis14%ofdairyconsumptioninChina,vs.c.1%inChina).

?FAOonlyreleasesdataupto2022(ayearoflockdownsinChina).WesuspectthatChina’sleadinmanycategoriesmayevenwidennow.

BofAGLOBALRESEARCH

6ChinaConsumer(H/A)|24November2025

Services:alsobroadlycomparabletoglobalpeers

OuranalysisshowsthatChina’sconsumptionvolumesforservicesarealsobroadly

comparabletoglobalpeers.Inparticular,corecategories,suchashousing,healthcare,andeducation,alreadyexhibitconsumptionlevelssimilartointernationalnorms,thoughhigher-qualityservicesandleisure-orientedservicesmaystillseeupside(whichwillbediscussedlaterinourreport)

?Housing:afteryearsofconstruction,percapitaresidentialfloorspaceinChina

reached49squaremetersin2021,surpassingtheUKandFrancethoughstillbelowtheU.S.averageof65squaremeters(seeExhibitbelow).

Exhibit4:PercapitaresidentialfloorspaceinChinareached49squaremetersin2021,surpassingtheUKandFrance

Percapitaresidentialfloorspace:Chinavs.developedmarkets

70

60

50

40

30

20

10

0

USChinaUKFranceJapan

Source:KennethRogoffandYuanchenYang(2024)

BofAGLOBALRESEARCH

?HealthcareutilizationisbroadlyinlinewithOECDnorms.IndicatorssuchasoutpatientvisitsandhospitalbeddensityexceedlevelsintheU.S.andMexico,thoughChinatrailsKoreaandJapan,agaplargelyexplainedbydemographicdifferencesratherthansystemicweakness.

?Educationshowssimilarprogress:whileaverageyearsofschoolingforadults,

whichisabackward-lookingmetric,remainlowat8yearsinChina,expectedyearsofschooling,whichmeasuresthenumberofyearsachildenteringschooltodayisexpectedtospendineducation,basedoncurrentenrollmentpatternsandsystemstructure,haverisento15.5,onparwithJapanandtheU.S.After-schooltutoringparticipationalsofarexceedsWesternnorms,evenafterregulatorycurbsunderthe‘DoubleReduction’policy.

Exhibit5:China’sconsumptionofhealthcareandeducationservicesarealsobroadlyinlinewithmajoreconomies

Percapitahealthcareandeducationservicesconsumption:Chinavs.othereconomies

Percapitaconsumption

China

Mexico

Japan

Korea

US

OECDAverage

Outpatientvisits

6.8

1.5

11.1

15.7

3.4

6.0

Hospitalbedper1000people

5.0

1.0

12.7

12.7

2.7

4.6

Averageyearsofschooling

8.0

9.3

12.7

12.7

13.9

Expectedyearsofschooling

15.5

14.5

15.5

16.6

15.9

Source:WorldBank,HealthataGlancebyOECD

BofAGLOBALRESEARCH

BofAGLOBALRESEARCH

7

ChinaConsumer(H/A)|24November2025

Extremelylowprices–directpricing

Alsostartingwithstats!

Inourview,China’snominalconsumptionvaluehasbeensuppressedbylowpricing.Asevidence,wealsocompareChinawithdevelopedmarketsandtheglobalaverage(datasource:NUMBEO).

?ChinalagstheglobalaverageinMOSTcategories.Thegapisespeciallymorevisibleinsomeservicecategorieswithgovernmentregulations.

?Incomparisontodevelopedmarkets,China’sgapisevenbigger,especiallywhen

comparedwiththeUS.TheonlyareaswhereChinaenjoyspricepremiumareeithercategorieswithlesscostadvantagesinChina(suchasdairy-inaddition,dueto

China’slegacyindustryreasons,therearemorepremiummilkproductsinChina,vs.commoditizationinWesterncountries),orhousing(butonlyabovetheUS,and

largelycomparabletoJapanandlowerthanSouthKorea).

Exhibit6:ConsumergoodsandservicesinChinaaregenerallyfarcheaperthanintheU.S.,Japan,andSouthKorea,exceptforhousingindowntown,whichissignificantlyhigherthanglobalaverages

Averagepricecomparisonforselectedgoodsandservices:Chinavs.theU.S.,JapanandSouthKorea(Oct2024–Oct2025,inUS$)

China/

China/

China/

China/

US

Japan

S.Korea

Global

34%

35%

23%

68%

CategoriesGoods/ServicesChinaUSJapanS.KoreaGlobal

Apples(1kg)1.85.35.17.72.7

33%33%25%67%

Oranges(1kg)1.54.54.55.92.2

24%25%19%49%

27%44%25%47%

Potato(1kg)0.72.92.83.71.5Lettuce(1head)0.62.21.32.41.3

20%20%32%47%

74%49%38%70%

Rice(white),(1kg)0.94.64.72.92.0Banana,(1kg)1.31.72.53.31.8

27%49%37%43%

Foodsand

65%56%38%87%

ChickenFillets(1kg)3.312.36.78.87.6BeefRound(1kg)10.716.519.028.012.3

18%42%30%31%

169%120%87%117%

BeveragesCoke/Pepsi(0.33L)0.52.61.11.61.5Milk(1L)1.81.11.52.11.5

45%114%57%111%

36%73%55%56%

WhiteBread(500g)1.73.71.52.91.5Eggs(12pack)1.64.42.22.92.8

24%61%49%61%

75%125%64%115%

Water(1.5L)0.62.30.91.10.9Wine(Mid-range)11.215.09.017.69.8

40%38%41%45%

83%93%81%71%

Beer(0.5L)0.82.02.12.01.8Jeans(Levisorsimilar,1pair)43.652.347.153.661.3

79%118%95%79%

Mealfor2People(Mid-range,3-course)22.578.036.842.248.2

McDonaldsMeal(orsimilarcombo)4.912.05.05.68.2

29%61%53%47%

41%98%87%60%

ApparelRunningShoes(Nikeorsimilar,1pair)71.790.660.575.6