‘Made in China’ becomes ‘Bought in China’
Kevin Martin reviews the shifting forces of consumerism in China, and the opportunities they present.
China's economy, boosted by a wave of growing middle-class wealth, is undergoing a significant shift in consumption,driven by a new generation of young, prosperous and independent consumers.
China's huge population and strong economic growth will make it the world's powerhouse of middle class consumerism over the next two decades. Today, China's economy is still heavily dependent on investment for growth: consumption only accounted for 50 percent of GDP last year, significantly less than the US at over 80 percent, and India, over 70 percent.
The eastern region is currently home to the most affluent consumers, particularly the tier-one cities Beijing, Shanghai, Guangzhou and Shenzhen. The region's tertiary sectors have the highest share of GDP of the 31 provinces/municipalities, mostly consisting of retail consumption, finance and IT services. It has the highest per capita retail consumption in China since it has the country's highest average wages as well as robust spending by tourists. Guangzhou has become the only city where retail consumption has contributed more to GDP than fixed asset investment for the last 12 years.
The eastern region's position won't be shrinking, but the geographic centre of China's middle class is also shifting because less developed inland provinces have grown faster than rich coastal regions since 2007 and now account for 49 percent of total GDP. Middleclass growth rates will be much greater in smaller cities in the north and west, and much of the rest of the country is expected to follow.
The Chinese Government is now actively encouraging more consumers to spend. The consumption in China will account for 60 percent of GDP by 2020 according to an IDC report. A massive push to urbanise will propel tens of millions of people and billions of yuan into the consumption equation. Spending by urban Chinese households will increase from 10 trillion yuan in 2012 to nearly 27 trillion yuan in 2022, according to McKinsey.
A new middle class of statusconscious upwardly mobile young people, with bold ambitions and a global mindset, are turning China toward a consumer-driven future. They are loyal to brands and prefer niche over mass market products.
Most of them are the only child in their families, and frequently the children of only children, giving rise to the so-called “4-2-1” dynamic: the savings of four grandparents and two parents are funnelled into the pocket of a single child.
This family model coupled with rising per capita household incomes are unleashing a wave of needs and aspirations that are getting people to rethink the ways they save and grow wealth. People are not only thinking about achieving or maintaining a certain quality of life, they are also aspiring for a good education for their children, both locally and overseas. The prospective rising salaries that accompany well educated graduates will reinforce this trend. Looking to the future, with one child potentially supporting four people in their old age, financial security in retirement is also a growing concern.
However, the ways the Chinese middle class have been maintaining their wealth so far is unsophisticated. Property has long been one of the most popular means of investment given the lack of diversity in financial investment products. Wealth management products (WMPs) are now becoming popular for this