A New Era of Consumerism in China

by Joe

A crowded market street in Hong Kong.

If you’re looking for the world’s largest consumer market, you’ll have to look across the Pacific, all the way to China.  While per capita consumer purchases still lag the US, based on the sheer difference in populations between the USA and China, China is the hands-down winner in this contest.  China’s ascendency to King of Consumer Mountain occurred in 2016.  In 2017, the nation’s consumer market will exceed our own by 10.5% ($500 billion).  There are many factors that contribute to this startlng change.

First, economists point to the emergence of a new generation.  These consumers were born between the 1980’s and into the current  century and are collectively referred to as the “Youth Generation”.  Among this segment, consumption is growing at an annual 14% rate—twice the pace of consumers older than 35.   The Youth Generation will exceed 53% of total Chinese consumption by 2020.

Boston Consulting Group recently polled members of this market segment on their agreement with the  following statement: “I feel I have enough things and feel less the need to buy new ones.”  Forty-two percent of Chinese aged 18 to 25 disagreed with the statement, By comparison, 36% of U.S. and EU respondents of that age-group, 32% of Japanese, and only 26% of Brazilians also disagreed with the statement.

Young-generation Chinese also tend to be more sophisticated consumers than those older than 35. They are eight times more likely to be college graduates. They travel overseas twice as much. And they are more brand conscious than older Chinese and U.S. consumers of the same age.  The following products are included in China’s top 20 consumer items list.

  • US fashions
  • Skincare
  • Trendy snacks (kale chips, super foods)
  • Maternity Wear
  • Designer sneakers
  • Beauty accessories
  • Juice
  • Baby accessories
  • Jewelry
  • Fresh produce
  • Wine
  • Natural cleaning products
  • Jewelry
  • Seafood
  • Baby Food
  • Sporting goods
  • Make up
  • Packaged health foods
  • Breast feeding products
  • Gadgets

As in the US, Chinese brands are being sold using a variety of psychographic positioning strategies that build strong emotional connections between consumers and brands.  For example, a top priority of 18- to 25-year-old Chinese consumers buying skin care products is that the brands should “fit their personality” and convey that they are “young and energetic.”

The rise of e-commerce retailing is an incredibly important component in all this consumer activity.  This is attributed in part to the success of Alibaba, Tmall and JD.com, which took advantage of the country’s undeveloped traditional retail infrastructure. “Alibaba, Tmall and JD.com positioned themselves well to capitalize on growing consumer demand by creating their own payment systems (e.g., Alibaba’s Alipay) and logistical services (e.g., JD.com operates a self-owned logistics network).  In 2017, China will comprise almost 51% of total ecommerce sales; the United States is a distant second, making up 19% of total global ecommerce sales.

In addition to offering better prices and wider selections, e-commerce actually stimulates new demand in China by filling many needs that aren’t being met at brick-and-mortar stores. For example, according to Taobao, spending by the average e-shopper on organic and imported food and beverages has expanded eightfold over the past three years. Many popular online offerings, such as organic baby foods, rice, and tea, aren’t carried in local stores.

Chinese consumers also buy higher-priced products online. Our research found that overall consumption of home care products, packaged foods, and personal-care items increases only moderately as Chinese households become more affluent. But according to Taobao sample data, online purchases in these categories increase by around 150% when Chinese households enter the upper-middle class. Online purchases nearly double again among affluent households. In large part, that’s because these consumers can find more distinctive, premium-priced products online.

E-commerce drives consumption growth by helping companies overcome distribution challenges associated with reaching a national market and by dramatically expanding the reach of their brands. We analyzed Taobao sales of several leading premium skin-care brands that already have fairly wide coverage in department stores. We found that only 55% of Taobao’s online sales originated in cities that have those goods physically available in stores; 45% of sales were from the thousands of cities that don’t have those goods in stores. The trend was similar for fashion apparel and baby education products.

Home page of the leading Chinese e-commerce site, Taobao.

An important element in the success of ecommerce, is market penetration of smartphone technology.  There are now 550 million smartphones in use in China.  This is more than twice the number of cellphones used in the US, where smartphones have been adopted by 84% of all mobile phone users.  In contrast, smartphones are in use with 56% of China’s mobile phone users.  Mobile e-commerce, which already accounts for 51% of all online sales in China, compared with a global average of 35%, will grow even faster. On Taobao, a Chinese e-commerce marketplace founded by Alibaba, the share of sales transacted though mobile devices rather than PCs rose from 51% to 62% within the first three quarters of 2015 and reached 68% on the year’s Singles Day (November 11, 2015), one of China’s biggest shopping days because retailers offer special promotions. By 2020, mobile e-commerce is projected to account for 74% of all online sales in China.

Will economic disincentives make the difference in stemming Chinese savings rates? At 50%, China leads all nations in consumer savings. Increasing Chinese consumption could spur economic growth to new heights.

Make no mistake about it, though.  Even with the big increase in consumer purchases, Chinese consumers continue to lead the rest of the world.  The Chinese are great savers; the nation’s savings rate is 50%.  Contrast that with the savings rate in the USA, which is about 2-3%.  France, Germany, Belgium and Spain, all save somewhere in the ballpark of 12 – 16%.  In an effort to further spur the growth of China’s economy, its leaders are encouraging more consumption.  One way of doing this is to create dis-incentives to save by making property investment more difficult and less attractive by assessing property taxes on second properties.  Increasing consumption though, will require improving the way Chinese consumers perceive their nation’s future.  This is a critical shift that must be made in order to break China’s unhealthy dependence on foreign imports.

All of this growth comes at a cost.  Industrial and biological pollution has contaminated almost 90 percent of the underground water in China’s major cities. The World Health Organization (WHO) estimates that one out of four (300 million) Chinese do not have daily access to clean water, and that one out of two (700 million) are forced to consume water below WHO standards.  In addition, China is home to 20 percent of the world’s population, yet only holds six percent of the world’s water resources. China’s water demand is expected to reach 818 billion cubic meters, but there is only 616 billion cubic meters available. Beijing has about 100 cubic meters of water available per person, well below the U.N. standard of 1,000 cubic meters per person, a threshold used to measure chronic water shortage.

Air quality is bad across the country, and lung cancer and cardiovascular illnesses are already rising and could get worse in the future due to factory emissions, vehicle exhausts and cigarette smoke.  Increased industrial output is going to increase the pressure on the environment.  China has been public about their desire to stem their carbon footprint and remain members of the Paris Treaty, a statement that the US cannot make at this point.  Can China accomplish both economic growth and sustainability objectives?

Small and medium-sized enterprises (SMEs) account for a major portion of job growth in any country, including China. Yet, China’s SMEs have found it particularly difficult to access capital. In response, “underground finance” and a shadow banking system have developed as a way to supply credit to private companies, although at exorbitant interest rates. Despite being an illegal activity — until March that is — underground finance has become a big business in China.  Private lending,  the term used for the informal networks of money lenders that have developed outside of China’s banking system, currently funds between two trillion yuan ($317 billion) and four trillion yuan ($634 billion) in loans to SMEs annually.  In March, 2012, China announced reforms in the coastal city of Wenzhou that would legitimize underground finance. These reforms are now spreading to other parts of China as many new “micro finance” companies are being granted licenses to provide much needed capital to China’s SMEs.

Look for more of the same over the next 10 years.  Further reform of China’s banking system and the development of China’s capital markets will fuel a new round of growth and wealth accumulation and will be one of the major new trends affecting the country.

Economic growth from China’s upper and middle classes has helped the nation achieve a leadership position among global economies.

  • An online presence with the key ecommerce retailers such as Taobao will be an important element in your strategy.
  • US Domestic brand strength is important since the Chinese are attracted to well known and recognized western brands.
  • Having a mobile marketing strategy is vital to reach consumers who mostly shop online via their smartphones.
  • Understanding the culture, beliefs, attitudes and opinions of the ‘youth generation’ shopper is important to your brand’s success with these consumers.
Like this post? Share it on your social media!
Facebooktwittergoogle_pluslinkedinmail

Trackback from your site.

 

The Do’s and Dont’s of Gift Giving in China

In Western culture, the Holidays are a traditional time of gift exchanges as we mark the occasion and share ….

Read More

 

A New Era of Consumerism in China

If you’re looking for the world’s largest consumer market, you’ll have to look across the Pacific all the way to ….

Read More

 

The Architectural Marvels of China

Visiting some of the world’s greatest architectural achievements is yet another reason to visit China and  ….

Read More

Word4AsiaWord4Asia

Copyright © 2017 - Word4Asia