Youths in small cities reshape China’s consumer landscape
The skyscrapers and neon lights of Guangzhou and Hefei held little allure for Zhang Shaoyang, a 24-year-old teacher in Huoshan County in eastern China’s Anhui Province.
After graduating from Guangzhou Academy of Fine Arts, Zhang worked in Hefei for a while before returning to her hometown where she now earns a salary of 3,200 yuan (US$460) a month.
Though the pay may be modest, Zhang tries her best to make life comfortable.
Like many young adults in her town, she buys top skin-care brands online, dines out with friends and funds her hobby: photography.
“I’m quite satisfied with the smalltown lifestyle,” she said.
Zhang is just one of the millions of young adults living in prefecture and county-level urban areas who are playing an increasing role in the changing consumer market.
Aged between 18 and 30, Internetsavvy, often with a college degree and a stable salary, these young adults are the new face of Chinese consumerism, driving economic growth.
“While investors perceive larger cities as the consumer heartland, we believe that lower-tier cities are getting bigger, wealthier and more eager to spend,” said Robin Xing, Morgan Stanley’s chief China economist, in a research report.
What underlies the changing consumer dynamic is the growing consumption power of small-town dwellers.
The growth of the middle class will be greatest in smaller cities, especially in the north and west.
Third and fourth-tier cities will see their share of middle-class households reach nearly 40 percent by 2022, compared with about 18 percent in 2002.
Thanks to government initiatives encouraging economic integration and fairer income distribution, such as the recent revision of the individual income tax law, the income gap between big and small cities is shrinking.
According to Morgan Stanley, per capita disposable income in smaller cities was less than half of that of top-tier cities a decade ago.
It had risen to 55 percent last year, and by 2030 small town residents are likely to make about two-thirds of what their big city cousins earn.
For young adults like Zhang, living in a small town means that they do not need to worry about the skyrocketing real estate prices in mega-cities such as Beijing and Shanghai.
The pace of life is slower and they have more leisure time to spend their money.
“I don’t spend much on my apartment or commuting. In Guangzhou I was definitely under much more pressure,” she said.
While deeper pockets create demand, the rise of e-commerce as a major way of shopping provides young people in small cities with just as wide a range of suppliers as they would have elsewhere.
Chen Qian, a 23-year-old community worker in Bengbu, Anhui Province, buys almost everything online. There is always something to be cleared in her shopping cart.
“All I need is Taobao, then I am all good,” Chen said.
According to a report by Boston Consulting Group and AliResearch, the research arm of Alibaba, by 2020, e-commerce will become a far more important retail channel, driving 42 percent of total consumption growth, with 90 percent of that growth coming from mobile e-commerce.
“In addition to offering better prices and a wider selection of goods, e-commerce actually stimulates new demand by filling many needs that are not being met at brick-and-mortar stores,” Morgan Stanley opines.
OPPO, not iPhone
While small-town consumers are increasingly affluent, they do not always aim for the fanciest products.
Oppo and Vivo, two Chinese smartphone brands focused on the mid-range consumer segment, took up about 18 and 15 percent of the market in 2017, while the iPhone, representing the premium segment, took up only 9 percent, according to market research firm IDC.
The rise of domestic brands could be attributed to small-town consumers, who were the major targets of Vivo and Oppo, according to a report by the Suning Institute of Finance.
When it comes to cars, young people in small towns also tend to seek more cost-effective models.
Sales of cars priced between 80,000 and 180,000 yuan are expanding rapidly in smaller cities, the report said.
But just because they are purchasing cheaper models does not imply that these young people lack the desire for a high-quality lifestyle.
Consumption of culture, entertainment and travel are especially strong in small cities, with young adult consumers in these areas contributing a notable share to China’s box office, according to the report.
This summer, Zhang and her mother drove to Tibet.
A week after the trip, she took her grandmother to Guangzhou and Shenzhen for sightseeing.
The trips cost Zhang 15,000 yuan, about five times her monthly salary, but Zhang was pretty content with what she did with her savings.
“I don’t need too many luxuries. I just want to live my life to the fullest,” she said.
For many international brands, firsttier cities may be their major targets, but the markets in small cities are becoming just too big to ignore.
Companies will have to venture far beyond the biggest metropolitan areas to win the loyalty of upper-middle-class and affluent households, said the report by BCG and AliResearch.
“There are high concentrations of such households in more than 2,000 cities. We estimate that to reach 80 percent of this market by 2020, companies will need to establish a presence in 430 cities,” the report said.
Sportswear, jewelry and other consumer product companies may be the first to capture the newly-minted middle-class customers, according to the Morgan Stanley report.
“Additional discretionary income also bodes well for fast food and restaurant chains, especially because many have yet to expand into lower-tier cities,” it said.
Some global brands have already started to act.
In 2017, McDonald’s announced plans to increase the number of its restaurants from 2,500 to 4,500 over the next five years, with third and fourth-tier cities the focus of the expansion.
The company expects 45 percent of its restaurants to be located in those cities by 2021.
The cultural consumption market is also largely untapped.
Taobao can perhaps bring all kinds of goods to the doorstep, but you still have to travel a long way for a good show.
The portable IMAX or high-end club is still a long way off.
Chen is planning a trip to Beijing next month, where she will watch the play “White Deer Plain.”
“Life is all about experiences,” the 23year-old said. “I just want to experience more.”
Wu Wenguang, 26, stays with his daughter after returning home from a day’s work in Guzhen County of Bengbu, east China’s Anhui Province.
Chen Qian spends her free time browsing an online cosmetics shop in Huoshan County of Lu’an, east China’s Anhui Province. — Xinhua