‘Made in China’ be­comes ‘Bought in China’

Kevin Martin re­views the shift­ing forces of con­sumerism in China, and the op­por­tu­ni­ties they present.

Exporter - - VIEWPOINT -

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

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