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China’s Aging Population

by Joe

Economic Implications of the One-Child Policy

By 2050, 25% of China’s population will be over 65 years old.  This situation is the number one economic problem that China will face moving forward.  

China’s aging population presents a unique social and economic challenge to today’s younger population.

How did China get here?  During the Maoist period following the famous words “more people more power” the nation became the most populous nation on earth.  The obvious challenges of unchecked population growth resulted in the ‘one child policy’ in 1979.  In 2016, this policy was changed again, allowing for two children per household. If able to pay the requisite tax more children are permitted.  Today, China is at a turning point and staring into what the Chinese Academy of Social Sciences (CASS) has described as ‘unstoppable’ population decline.  The Chinese population is hemmed in from two sides, decades of declining birth rates on the left, and steeply rising life expectancy (improved medical technology, improved nutrition) on the right.

The CASS predicts that China’s population will peak in 2020, at 1.44 billion.  It’s expected that this will usher in a period of ‘negative population growth’; by 2065, the population is expected to have returned to. Mid-1990’s population levels.  A shrinking population may argue a shrinking economy as well.

There are indicators this is already happening.  Look at the last four years of Chinese national birth rates:

2016:  17.9 million births

2017:  17.2 million births

2018:  15.2 million births

2019:  14.6 million births

These national figures, striking as they are, hide some of the most significant changes occurring in the provinces.  Some areas are reporting birth rate declines as steep as -35% per year.

Despite the fact that China increased the official child-per-family policy to two children in 2016, Chinese families have not rapidly moved to increase in actual size.  There are both sociological and economic reasons at play.  Women have found an important place in China’s economy and are reluctant to sacrifice a position they have worked hard to attain. After all “women hold up half the sky.”   Despite the systemic, positive discrimination favoring male students, more women than men attend Chinese universities. Women are responsible for 41% of Chinese GDP–the highest proportion in the world. Some 7 in 10 Chinese mothers work. Eighty percent of all female self-made billionaires, globally, are Chinese.  While Chinese women have earned hard-won economic success, Chinese employers frown on the idea of their female employees taking more time from their jobs to have a second child.

Today, there is a massive in-balance in the number of males versus females in China.  Males outnumber females by 34 million people.  This problem also arose during the official one-child-per-family era.  During this time, male children represented a greater economic advantage than female children.  Faced with the one-child policy, sadly, many families chose to abort female babies despite the fact to do so violated Chinese law.  Today, there is a massive in-balance in the number of males versus females in China.  Males outnumber females by 34 million people.  Presently, there are 24 million single men of marrying age in China who cannot find wives – this is the combined population of Texas and New York state.  China is already paying a heavy social price for this.  Multiple studies implicate gender imbalances in maladies including reduced consumption and real estate bubbles, and correlate with spikes in violent crime, spousal abuse, trafficking and prostitution.

With four parents and eight grandparents to support, Chinese parents are finding it difficult to support one, let alone two, children.

Young Chinese couples are also struggling with economic pressures, including rising education and housing costs.  It’s hard to support one child, let alone two.  Biology also plays a part; the policy change is only several years old.  These young couples grew up during a period when it one child families were the universal rule; larger families represent an uncomfortable change for them.  In addition, many of China’s women have passed their peak fertility age.  Another major economic challenge is China’s pension shortfall amidst an aging population.  Current projections show that China’s pension funds will run dry by 2035.  With no pension funds available, young couples will face the economic pressure of supporting eight grandparents and four parents.  The problem is especially acute because these young men and women have no siblings of their own to help shoulder the costs.  

The future that China is quickly approaching is not one that matches China’s aspirations for global supremacy.  Instead, the picture that Beijing’s National Academy of Economic Strategy. Paints features a society where its younger people are burdened by the care of elderly parents and grandparents, living in an economy that is crippled by unsustainable debts. Again, signs of this economic weakness are already at hand; China’s pension shortfall topped $130 billion in 2019, further adding to the nation’s debt burden which is already estimated at three times its GDP.  As China moves into the future, this situation may become untenable; in 2014, there were 880 million working adults in China.  By 2050, that number is projected to fall to 570 million.  This situation also presents a massive macro-economic question:  how will China create the required demand for housing, consumer goods and so forth?

Staying abreast of what is happening in China is critical for any organization that aspires to operate there.  For over 20 years, Word4Asia has helped our clients legally and successfully navigate in this fascinating and challenging nation.  If your plans include work in China, we’d appreciate an opportunity to learn more about where you’re going.  We may be able to lend you the support you’ll need to achieve the success you’re aspiring to.  Contact Dr. Gene Wood at gene@word4asia.com

Personalization & Isolation

by Joe

Marketing Trends in China During a Pandemic Era

In China’s business world, one of the most important marketing trends in the last several years continues to be ‘personalization’.  Think of target marketing taken to the level of the individual consumer.  

A few examples of companies who are doing this successfully include Nike and Coca-Cola.  NIKEiD is the name given to Nike’s product customization program, aimed at consumers who are buying Nike’s products online.   Their technology enables customers to create their own gear by customizing color, design, and performance features.  Coca-Cola, on its website, has added the feature of creating customized bottles, t-shirts, and other items. The customers can get a whole range of personalized items with extra spending of varying degrees.

A whole suite of technology is at work, allowing marketers to offer unprecedented customization.   On the supply side, AI, robotics, 3-D printing and other emerging technologies are significantly reducing the costs associated with personalizing product design, manufacturing and consumer communications.  On the consumer side, this hyper-personalized marketing approach relies on China’s internet penetration, more than 800 million people have internet access.   98 percent of these consumers own smart phones.  China leads the world in e-commerce sales.  By 2022, over 63% of the entire world’s e-commerce sales will come from China.  

As in most industrialized nations, China continues its swing toward Ecommerce. In 2020, the requirement for pandemic-driven isolation has hastened the transition.
Ecommerce depends on Web 2.0 technology, the same as social media apps do. China leads the world in terms of numbers of Ecommerce shoppers. WeChat is the primary social media app that Chinese consumers depend upon to facilitate many of their online activities.

Social media is also a major factor, and, in China, WeChat is the leading social media platform.  This app was originally simply a messaging app.  However, its functionality has grown by leaps and bounds.  Today, it is thought of as the ‘swiss army knife’ of mobile apps.  WeChat draws from its users personal data.  Its users rely on the app for a large amount of their daily functioning – everything they need is contained in a single app.   To get maximum service out of their WeChat accounts, the Chinese provide a lot of their personal information and can opt to let the app access their name, location, spending habits and a great deal of other personal information. 

Grappling with the pandemic, a young Asian teenager wears a protective face mask while out on a shopping trip. Her connection to the world is through WeChat.

Consider the times we are living in.  The pandemic has changed the way many people in industrialized nations are shopping.  A review of Amazon’s recent operations revenues tells the story well.  North American sales were up 29% to $46.1 billion, while international sales grew 18% to $19.1 billion.  These are record months for the ecommerce giant.  It’s a far cry from where the traditional brick and mortar retailers are at the moment.  Many of these businesses are considered non-essential, and therefore have been mandatorily closed since mid-March.  The result, we know, is the global recession we are now in the midst of.

Otherwise, the outbreak of Covid-19 has accelerated Chinese marketing trends that were already developing quickly.  These include: 

  • investments in e-commerce infrastructure
  • gamification and live streaming of content via social media
  • Tactical revisions in social media strategies including replacing ‘key opinion leaders’ (KOL’s) with ‘key opinion consumers’ (KOC’s).  This shift emphasizes what actual consumers are doing versus what celebrities think/ say about a brand.   KOCs have the advantage of appearing more trustworthy and relatable than KOLs, while requiring less spending from brands.

We are living in very uncertain times, and walking through uncharted territory in many ways these days.  As always, Word4Asia will continue to keep our friends and colleagues abreast of the many ways that the landscape continues to change in China.  We continue to believe that China is a land of business opportunities for many American organizations.  Our in-depth experience in and knowledge about this fascinating nation makes Word4Asia a natural partner for many organizations.  If your path is leading you east, we would love to talk with you about it.  Feel free to contact Dr. Gene Wood at gene@word4asia.com.

China and The Sharing Economy

by Joe

We know many of our readers are keenly interested in the major trends within China’s economy.  As a result, we have frequently turned our attention to the ways it is always evolving.  One of the most interesting trends is the growth of the ‘sharing economy’.  

Tianjin, China – March 11, 2017: Mobike bicycles parking in a row in Tianjin, China. Mobike is a fully station-less bicycle-sharing system, created by Beijing Mobike Technology Co., Ltd.

This trend is not limited only to China.  In fact, examples of the sharing economy can be seen in various countries and continents around the world.  Nowhere, however, has the growth of the sharing economy been as significant, or as highly prioritized by national leaders, as in China.

You might be wondering, “ What is a ‘share economy’ ”?  It is a type of economy that is not monetarized and it is not based in a capitalist system.  In the sharing economy, individuals are said to hire out things like their cars, homes and personal time to other individuals in a peer-to-peer fashion.  Two examples that some Americans have become familiar with include Uber/ Lyft and Airbnb.  To be fair, these are near relatives of the sharing economy because in these examples, there is still a significant transaction fee, not true sharing.  Additionally, Airbnb properties are frequently owned by property management companies, not individuals.

Sharing economies harness new communications technologies that help people share versus own what they have with other people.  These economies produce community, environmental and economic benefits for those who participate in them.   In China, the experimentation in various sharing markets has been extensive.  Everything from bicycles, houses, and cars to umbrellas, basketballs and flower pots have been included in various sharing schemes.  From the different businesses that have been attempted, the Chinese have shown us that success has been the greatest when shared assets are more expensive and less frequently used.  In these cases, participants enjoy significant cost-savings and this tends to drive higher levels of participation.  High participation levels, from both the supply and demand sides of the transaction, is required for these businesses to become sustainable.  

Trust is also a very important element in the success of these businesses.  Those on the ‘demand’ side have to trust that they will find the products / services they need, where and when they need them.  Those on the ‘supply’ side have to trust the other side to return the things that have been shared with them.  There have been examples when trust was violated and companies were put out of business; one firm lost 300,000 umbrellas (it’s entire supply) in a matter of weeks because the small deposits that were left by users was too small to drive return of the umbrellas.  

However, maybe the most important element of success in the Chinese model is the ‘national priority’ that the Chinese government has placed on developing this industry.  When the CPC says that something is a priority, it’s impressive to see how quickly things get done. 

 In 2017, 600 million people (43% of the nation’s adult population) participated in sharing market transactions, generating an equivalent of $500 billion dollars in revenue.  Comparatively, only 21% of Americans have participated in a ‘sharing’ transaction to date.   The CPC projects an annual growth rate of 40% and have stated that in 2020, the sharing economy will contribute 10% of China’s total GDP.  This will increase to 20% by 2025.

There’s another very important element that sharing economies require to truly succeed; advanced communications technologies.  This technology includes the Internet (especially mobile Internet), broadband, cloud computing, big data, Internet of things, mobile payment, and location-based service (LBS).  

In In an interview, William Chou, head of Deloitte’s telecoms, media and technology practice in China, said that collecting data is the first goal of the sharing economy.   Every time consumers scan the QR code on a bicycle — or basketball, handbag, umbrella — they provide information about habits, locations, behaviors and payment histories.  Therefore, the platform must take measures to establish confidence of both parties. For example, the platform must check participants before allowing them to join, or set up a participant credit evaluation system based on previous transaction records, or provide security or insurance against bad results, or set up a prepayment mechanism, etc. Unlike traditional business models, the credit evaluation system and other trust mechanisms (such as insurance, guarantee, and prior review of participants) of the sharing platforms can effectively reduce concerns caused by information asymmetry on the two-sided market, thus reducing the demand for government regulation.  For this reason, sharing not only means sharing information or practical items between users and third-party service providers, but also often sharing users and data with platforms. Therefore, sensitive data, such as personal addresses, contact information, preferences and habits, and even the lifestyle of participants, are exposed to platforms.

We’re living in an age where the rate of change has never been faster, and it only seems to increase.  We are witnessing new technologies, new human needs, new challenges and new solutions.  Word4Asia is in the business of helping our customers meet new challenges successfully in the endlessly fascinating nation of China.  Keeping abreast of changes such as the burgeoning sharing economy, is an example.  If your growth plans include success in China, our success rate says that we can play an important role for you.  An initial consultation is available for the cost of a cup of coffee (if you happen to be in Southern California).  Contact Dr. Gene Wood to start a conversation you’ll be glad you had.  

Email:  gene@word4asia.com

China’s Middle Class

by Joe

Over the last forty years, China has achieved a dominant position among the major world economies.  Several factors have contributed to this.  First, China became a supply chain hub for most of the world’s manufacturing processes.  More recently, the single most important factor in China’s continued GDP growth has been the unexpectedly rapid rise of a new digital economy.  This sector is now estimated at more than $3 trillion, or a third of national output. R&D investments in China’s tech sector have tripled in the last ten years to $440 billion per year and 9 of the world’s top 20 internet companies are Chinese.  The remainder are American firms plus one Canadian company.  A Tufts University survey ranked China the most rapidly evolving digital economy in the world. 

Over the last forty years, China’s middle class has become a major economic force.

This economic growth has produced a burgeoning middle class.  Current estimates put the size of China’s middle class at 400 million people or 140 million households. This is less than one-third of China’s total population.  Among them, the urban affluent population is concentrated in the eastern and coastal provinces that witnessed rapid growth as China invested in developing local industries and supply chain logistics capabilities that could connect easier with the rest of the world. 

In addition to expanding industries, the Chinese government has added legislation such as tax reforms that have left the Chinese with more disposable income.  Changes have included raising the tax-free threshold from RMB 3,500 (US$516.70) to RMB 5,000 (US$738.14) a month and adding new deductions, such as for parental aged care, housing mortgage costs, education costs, and healthcare costs, among others.

The growth of the Chinese middle class has been astounding.  In the last forty years, China has rapidly urbanized.  58% of its population is now urban.  In 2000,  only 4% of those urban households were middleclass.  By 2017, that statistic had grown to 30%.  This pales, however, with what’s projected to come in just the next few years.  McKinsey & Company now estimate that by 2022, 76% of China’s urban population will qualify as middle class.  McKinsey qualifies middle class as Chinese households that earn the equivalent of between $9,000 and $34,000 annually.  (These projections are all pre-pandemic.) 

There are at least four different ways the Chinese might classify themselves as middle class; these include occupation, income, consumption and self-image.  The population of the middle class under each classification system follows:

  • By occupation – 136m people
  • By income – 211m people
  • By consumption – 300m people
  • By self perception – 402m people

When membership in more than one of these groups is a requirement for middle class membership, the total number of people that would qualify drops sharply.  For instance, if belonging to each of the four groups was a requirement,  the total number of middle class would drop to about 4 million people in all of China. Membership in China’s middle class is a fragile thing.

China’s middle class spends money differently than the way American middle class families spend theirs.  For example,  The Chinese people are better savers than American families are.  China’s young middleclass families watch their budgets by buying in bulk and buying ‘on sale’.  They rarely eat out or travel abroad.  The Chinese also place a higher value on education.  Rather than spending on non-necessities like many western cultures do, Chinese families invest in education and on their children’s extracurricular activities such as music or dance lessons.  It’s thought that these activities will give Chinese children an edge when it comes time to explore opportunities to study overseas.  This emphasis on education is understandable.

The intense focus on education occurs because admissions into Chinese universities is much more scare than in the United States.  China’s college entrance examinations see more than 10 million students competing to secure a spot in one of the 150 tier-one universities.  There are at least ten eager students for every available opening in those universities.

As China’s middle class has become an important consumer market, top US retailers have found new ways to profit from the opportunities.  Walmart has conducted business in China for twenty years and is stepping up its investment.  The retail giant plans to open 14 more Sam’s Club membership stores by 2022, bringing its total Chinese store count to 45 locations.  Besides opening new locations, Walmart is also spending to upgrade its Chinese retail stores.  In 2018, Walmart spent $56 million on renovations.  Their longterm plan through 2030 is to spend over $8 billion to further develop their supply chain.  

Among the Chinese middle class is a cohort known as G2 consumers.  They are typically teenagers and people in their early 20s, raised in a period of relative abundance.  It comprised nearly 200 million consumers in 2012 and accounted for 15 percent of urban consumption. In ten years’ time, their share of urban consumer demand should more than double, to 35 percent. By then, G2 consumers will be almost three times as numerous as the baby-boomer population that has been shaping US consumption for years.

The G2 generation, Chinese teenagers, will represent over 35% of total consumer demand by 2030.

Their parents lived through years of shortage and focused primarily on building economic security. They are confident, independent minded, and determined to display that independence through their consumption. Most of them are ‘princelings’,  born and raised during a period when China’s one-child policy was strictly enforced.  According to McKinsey and Co. research, this is the most westernized Chinese generation ever. They get emotional satisfaction from buying higher priced products, are brand loyal, and prefer niche versus mass marketed brands.  They are early adopters in new categories like personal digital gadgets, and like their western counterparts, are more likely than previous generations to check their peers’ social media posts for product endorsements before buying things.  They also have strong influence on family purchases.  

It isn’t just imported American brands that are doing well in China.  China’s newly minted middle class is rapidly gobbling up the products offered by native Chinese brands such as Huili (athletic shoes that compete with Nike and Adidas) and Perfect Diary (a cosmetics brand that goes head-to-head with Revlon and similar brands). These start-ups target China’s millennials and market their products using flashy campaigns that include popular Chinese singers and partner with widely recognized Western icons such as the British Museum of London.  In addition to achieving a high level of sales ($14 million in 2018), Perfect Diary is also opening a large number of stores in China.  The company opened 40 locations in 2018 and plans to open 600 by 2022 (pre-pandemic forecast).  Other American brands that are capitalizing on China’s booming middle class include Starbucks, Apple, Kentucky Fried Chicken and Netflix.  

Technology companies are the most important factor in China’s modern economy.

Things may be changing for China’s middle class, however.  The country’s strong economic growth is slowing as changes in political philosophy have led to tightened restrictions on the flow of funds out of China and a reduction on news from the west.  The trade war with the United States has also weakened the dollar:yuan exchange rate, making imported US products more expensive.  One Chinese university professor in Guangzhou recently described her outlook on the short-run economic situation by saying, “It’s just like watching our car enter a tunnel, but suddenly finding there is no way to turn on the headlights.”   Interpretation:  The future is unknown, and it’s not a comfortable feeling.  

There is a growing public perception that purchasing power is shrinking.  As the value of the rmb starts to lose value, wealthier Chinese are focused on “preserving the value” of their assets.  One tactic people are using is transfer of their money to foreign banks.  Even with these hedges, the general belief is that the rapid economic growth of 10% or more in recent years will continue to slow down.  Annual growth in GDP of 3% or 4% is projected for at least the next five years.  

The face of China is always changing.  This fascinating country offers both cultural and economic opportunities.  For over twenty years, Word4Asia has been on top of these changes and this has allowed us to play an important role in our clients projects.  Are your plans calling you east to China?  We’d be happy to meet with you to discuss ways we can help you chart a more successful path.  Contact Dr. Gene Wood at Word4Asia with any inquiries (gene@word4asia.com).  We look forward to hearing from you! 


Sources:

https://www.tandfonline.com/doi/abs/10.3200/AAFS.33.2.67-83?journalCode=vasa20

https://www.hooplaglobal.com/news/chinese-middle-class-is-growing

https://www.inkstonenews.com/business/chinas-rich-are-trying-move-their-wealth-abroad-yuan-weaks-and-price-rises/article/3026498

https://asia.nikkei.com/Opinion/China-wants-to-be-a-middle-income-country-without-a-middle-class

https://www.latimes.com/71189283-132.html

https://www.ifri.org/sites/default/files/atoms/files/ifri_av69_thedistinctivefeaturesofchinasmiddleclasses_ekman.pdf

 

China’s Aging Population

By 2050, 25% of China’s population will be over 65 years old.  This situation is the number one economic problem that China will face moving forward. 

 

Read More

 

Personalization & Isolation

In China’s business world, one of the most important marketing trends in the last several years continues to be …

 

Read More

 

China and the Sharing Economy

We know many of our readers are keenly interested in the major trends within China’s economy. As a result, we have frequently turned our …

 

Read More