Youths in small cities re­shape China’s con­sumer land­scape

Shanghai Daily - - FEATURE - (Xin­hua)

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.

In­come gap

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

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