Buy Now Pay Later

How chi­nese con­sump­tion has changed from mak­ing ends meet to free spend­ing

ChinAfrica - - OPINION - By Li Fang­fang

Gao Yun­ing finds it hard to ex­plain to his stu­dents who were born in the 1990s and be­yond why Chi­nese peo­ple used to “buy” prod­ucts with food stamps. “My young Chi­nese stu­dents may have heard from their par­ents about what life was like in that pe­riod, but for my stu­dents from the West, they have no idea at all,” Gao told Chi­nafrica.

“The use of food stamps was based on a short­age econ­omy,” said Gao, an as­so­ciate pro­fes­sor at Bei­jing-based School of Pub­lic Pol­icy and Man­age­ment, Ts­inghua Univer­sity.

Be­gin­ning in the 1950s and last­ing un­til the 1980s, China suf­fered se­vere short­ages of food and goods as the coun­try fo­cused on post-war re­con­struc­tion af­ter the found­ing of the Peo­ple’s Re­pub­lic of China in 1949. Through­out the coun­try and in ev­ery house­hold, peo­ple lived a fru­gal life­style. The Cen­tral Govern­ment had to is­sue ra­tion books for peo­ple to re­ceive food and other ne­ces­si­ties, in­clud­ing oil, clothes and bi­cy­cles. This sys­tem en­sured that the dis­tri­bu­tion of sup­plies was done on an eq­ui­table ba­sis.

Things be­gan to change in 1978, the first year of re­form and open­ing up. Struc­tural re­forms were car­ried out in ru­ral ar­eas and cities; pri­vate en­ter­prises be­gan to boom and the mar­ket econ­omy be­came more ac­tive. Ra­tion coupons fi­nally stopped be­ing is­sued and be­came a part of China’s his­tory around 1993, mark­ing the end of the short­age econ­omy.

Gao de­scribed the three main stages Chi­nese con­sumers have ex­pe­ri­enced in the past decades. First, dur­ing the ra­tion coupon era, peo­ple un­der­went short­ages and then had suf­fi­cient ne­ces­si­ties for their needs. In the 1990s, they be­gan to ac­cu­mu­late wealth and pre­ferred more rather than less, and big­ger rather than smaller. In re­cent years, Chi­nese peo­ple, par­tic­u­larly in big cities, have started to seek a higher qual­ity of life, ma­te­ri­ally and spir­i­tu­ally.

Fol­low­ing Ja­pan and the United States, a grow­ing num­ber of young ur­ban dwellers in China choose to live their lives on credit as the coun­try grows from short­ages to af­flu­ence with a larger mid­dle-in­come group.

Gen­er­a­tion gap

In mod­ern Chi­nese fam­i­lies, it is ap­par­ent that there are many dif­fer­ences be­tween par­ents and chil­dren around con­sump­tion and their de­riv­a­tives. In Septem­ber 2017, when Ap­ple Inc. launched its iphone X, it was like a car­ni­val for Chi­nese mil­len­ni­als.

“I hate to hes­i­tate when I see some­thing I want. I want to have it now,” Zhao Qi­jun, one of the Chi­nese mil­len­nial ur­ban con­sumers who are jump­ing onto the buy-now-pay­later band­wagon, told China Daily.

Ac­tu­ally, Zhao couldn’t af­ford the smart­phone’s $999 price tag. But it wasn’t a prob­lem for the 25-year-old be­cause con­sumer credit ser­vices, like Chi­nese tech gi­ant Alibaba’s af­fil­i­ate Ant Check Later, al­low users to pay off their pur­chases in in­stall­ments. At the end of 2017, prod­ucts pur­chased by in­stall­ment ranged from the 3Cs (com­puter, com­mu­ni­ca­tion and con­sumer elec­tron­ics) items to daily ne­ces­si­ties, ac­cord­ing to a re­port by Fen­qile, an in­stall­ment shop­ping plat­form. This method of pay­ment, how­ever, low­ers cus­tomers’ sen­si­tiv­ity to prices, mak­ing it more ac­cept­able to pur­chase ex­pen­sive, qual­ity prod­ucts, said the re­port.

In con­trast to Zhao, who is pay­ing for in­stant grat­i­fi­ca­tion, some peo­ple pre­fer to buy a dream via in­stall­ments. Zhu Guangyuan was born in the ru­ral area of Chifeng City in In­ner Mon­go­lia Au­tonomous Re­gion. His dili­gence led him to a col­lege in the re­gion; how­ever, af­ter grad­u­a­tion, he found him­self un­em­ployed. An en­roll­ment no­tice from a Bei­jing-based com­puter train­ing or­ga­ni­za­tion caught his eye, but he couldn’t af­ford the tu­ition fee. For him, an in­stall­ment plan was the best choice at the time. By bor­row­ing 16,300 yuan ($2,400)

from an in­stall­ment plat­form, Zhu only had to pay part of the in­ter­est for the first six months and the cap­i­tal and the rest of the in­ter­est in the en­su­ing 12 months. The train­ing was ac­tu­ally a pre­lude to his find­ing a de­cent job in his home­town, mak­ing it pos­si­ble for him to even­tu­ally buy his own apart­ment there.

“It’s eas­ier to pay back with in­ter­est than to bor­row from friends as a fa­vor,” Zhu said. Tra­di­tion­ally, peo­ple lend money based on the bor­rower’s rep­u­ta­tion and their level of fa­mil­iar­ity. There­fore, those born rich or who have money have many more re­sources at their dis­posal, mak­ing this method un­fair.

Gao de­scribed a pro­found change that is tak­ing place in China from a so­ci­ety of per­sonal re­la­tion­ships to one of in­di­vid­ual cred­i­bil­ity, which will make the eval­u­a­tion sys­tem more ob­jec­tive and fair.

In a sur­vey con­ducted by Ant Fi­nan­cial, most young ur­ban peo­ple said they were com­fort­able bor­row­ing money to fund their life­styles. This in­cluded tak­ing en­rich­ment classes, at­tend­ing gym classes and even tip­ping on­line blog­gers.

“This phe­nom­e­non is largely due to the fact that mil­len­ni­als are grow­ing up in an en­vi­ron­ment of sur­plus,” ex­plained Mei Feng, Vice Sec­re­tary Gen­eral of the Bei­jing Youth Cham­ber of Com­merce.

In Gao’s view, young peo­ple have a broader sense of prod­ucts which in­clude not only tan­gi­ble items, but also ser­vices. “They are will­ing to pay for the hap­pi­ness they may ac­quire from an item or ex­pe­ri­ence,” he said.

Con­sump­tion up­grade

His­tor­i­cally, China is not unique in terms of its cur­rent con­sump­tion up­grade. As a re­searcher with a main fo­cus on in­ter­na­tional eco­nomics and de­vel­op­ment, Gao com­pared China’s cur­rent de­vel­op­ment to the United States in the 1920s and Ja­pan in the 1970s-80s.

“In the 1970s, the Ja­panese lan­guage was every­where in Ital­ian lux­ury stores,” Gao said. “And the U.S. magazine Na­tional Ge­o­graphic boom was due to its do­mes­tic de­mand for over­seas tourism.”

Cur­rently, China’s fash­ion con­sump­tion ac­counts for 30 per­cent of the world’s to­tal, mak­ing it the top lux­ury con­sumer coun­try, ac­cord­ing to Chen Wen­ling, Chief Econ­o­mist with the China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes. She said fash­ion con­sump­tion by means of over­seas travel or e-com­merce plat­forms is one of the main char­ac­ter­is­tics in the cur­rent con­sump­tion struc­tural change.

The main rea­son be­hind the con­sump­tion up­grade, from the per­spec­tive of eco­nomic de­vel­op­ment, is the change in the coun­try’s in­come struc­ture due to its eco­nomic growth. The emer­gence of a mid­dle-in­come group has be­come the main driv­ing force of the con­sump­tion up­grade. What has come with the in­come struc­ture up­grade is the ten­dency for peo­ple’s buy­ing pref­er­ences to be dif­fer­en­ti­ated, ac­cord­ing to Gao.

Along with high-end con­sump­tion, the re­cent pub­lic of­fer­ing of Chi­nese uni­corn Pin­duo­duo, an e-com­merce web­site backed by tech­nol­ogy gi­ant Ten­cent, also re­minds the world of the in­creas­ing con­sumer power of a large num­ber of low-in­come Chi­nese peo­ple. A uni­corn is a pri­vately held startup com­pany val­ued at over $1 bil­lion.

“The con­sump­tion up­grade does not only re­fer to the mid­dle-in­come group,” Gao said. “It is what is meant to build a mod­er­ately well-off so­ci­ety in all as­pects.”

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China’s mil­len­ni­als are happy to use credit for wanted goods and ser­vices

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