Emerging Market Indeed: Consumer Trends in China
With the precarious economic situation currently unfolding in China, businesses need to be aware of the shifting consumer trends in one of the world’s largest markets. Although the Chinese economic situation may seem bleak, that is not necessarily the case for the savvy, well-informed manager, nor is that the case among Chinese consumers.
Compared to 2014, in China, consumers’ willingness to spend is up two points to 48%, the highest level over the past four years. Those figures indicate that despite China’s slowing economic growth, which fell to 6.9% in 2015, local consumers’ desire to spend are unaffected and keep rising.
Worldwide, global consumer confidence ended 2015 on a subdued note as the index declined two points from the third quarter to 97. Among the world’s largest economies, China ranked the first (107), followed by the U.K. (101), the U.S. (100), Germany (98) and Japan (79), which all showed quarter-on-quarter confidence declines.
So although the overall economy is struggling, Chinese consumers are still spending. But on what?
In the fourth quarter of 2015, saving and investing intention levels were highest in Asia-Pacific (61% and 37%, respectively), as was spending on holidays/vacations (44%), new clothes (41%), new technology (34%) and out-of-home entertainment (34%).
Knowing the spending patterns of Chinese consumers is a great start; however, due to the sheer size of China, one has to anticipate heterogeneity in income levels, spending habits, and purchasing power.
Rising Middle Class & Tier 1 Cities
With a steady increase in migration from rural areas to Tier 1 cities such as Beijing, Shanghai and Guangzhou, China’s burgeoning middle class is at the leading edge of rising consumption. The newfound infrastructure and technological amenities along with rising income levels in these cities has led to a rising consumer mentality as well as increased utilization of online retail. In addition to the growing middle class in these cities, women born in the 1970s living in these areas have been found to be a driving force behind online retail spending. The combination of these two factors, points to the inevitability that the middle class will become the standard setters for consumption.
Rural Consumers Becoming More Empowered
Government support of rural ecommerce has increased willingness to spend and resulted in an increase in the spending power among these regions. As greater access to the Internet spreads in these regions, e-commerce platforms will be the shopping channel of choice for rural consumers living in regions that lack active commercial retail centers but have high levels of demand for goods and services.
Distribution of Wealth
Today, about 85 percent of mainstream consumers live in the 100 wealthiest cities; in the next 300 wealthiest, only 10 percent of consumers are mainstream, but that percentage will rise to nearly 30 percent by 2020.
It should be fairly obvious that the current strategies and approaches toward market penetration/segmentation may prove to be ineffective or even ill advised as the Chinese market continues its transformation. Businesses and managers need to adjust their strategies to better incorporate these actively changing trends if they aspire to successfully do business in China.
The Chinese consumer market has seen enormous growth- and only 11% of the population has reached the middle class. As their ranks grow, so will their effect on the national and international economy. There will be huge opportunities for the entertainment, food service, technology and other industries. In order to fully capitalize on this, businesses will need to understand China’s shifting demographics and appreciate the growing power of the middle class as well as the rural consumer; aligning pricing, offerings and other practices to these groups specific needs.
MD/MBA/MPH Candidate, Tulane University