There have been concerns that the Chinese economy may be faltering, as growth slips to 7.4; what we may be seeing, however, is the tipping point as China’s economy becomes consumption led, rather than investment led. Recently revised figures for the economy indicated that during 2011 and for the first 3 quarters of 2012 consumption accounted for over 50% of the economy, while investment’s share fell back to 48%.
The significance of this shift is borne out by recent research looking at the emerging power of Chinese consumers from McKinsey, Boston Consulting Group, Euromonitor and others.
Chinese consumers are optimistic about the future in the long and short term: 80% think their children will have a better life than they have had; and 40% intend to spend more in the coming 12 months than previously. Furthermore, barring any major global setbacks, consumer demand is expected to maintain a steady 7.9% level of growth in the economy out to 2020.
Between now and 2020, average annual income is expected to grow from $4,000 per capita to $12,000; some say $16,000. That average growth conceals what could be a significant issue: the wide variation in incomes. By 2020, what are being called ‘mainstream consumers’, with incomes ranging between $15,000 and $34,000, will make up just over half the total. They will be living primarily in the first and second tier cities and be looking for new, more individual brands to which they can relate. Over one third of consumers, however, will have average incomes of $6,000 – $16,000; some far lower. At the other end of the scale 6% will have incomes of $34,000 and over, and a few High Net Worth Individuals will have incomes in the millions.
Other demographic changes will make up significant market groups too. By 2020, there will be more than 15 million people over 65. While the current generation of older consumers, having lived through the difficult times of the Cultural Revolution, are cautious and many have very little discretionary income, the next wave – currently 45-54, is more open to spending and will have more disposable income.
The other potentially significant segment, socially and as consumers, are single men. Nearly 24 million – or nearly 1 in 4 of all Chinese men – will, as a result of the one child policy, be unable to find wives by 2020; 18 million will be between 20 and 34. Those with jobs and reasonable incomes will represent a major target market for discretionary and leisure spending. Socially they may present a significant destabilising factor.
We are talking huge market opportunities. Chinese and Indian consumers combined are expected to spend $46 trillion between 2010 and 2020; $10 trillion in 2020 alone – if only half of that is attributable to Chinese consumers, that is still a huge market. Chinese consumers’ disposable income is expected to be in the region of $10 billion in 2020.
Demand for housing will be enormous as migration to the cities continues; so will housing related spending, with more affluent consumers willing to splash out on luxurious foreign brand goods.
Travel is becoming a major market- domestic as well as overseas. By 2020, 100 million Chinese are expected to go abroad each year.
And the new consumers are internet savvy, with many turning more to online shopping than traditional retail outlets.
But these enormous opportunities are not without their challenges. China’s distribution system has been described as labyrinthine – investing for the long term will be important; so too may partnerships.
Competition from national as well as international brands will be fierce. Chinese consumers have traditionally been loyal to brands – the question in future will be to which ones. Companies will need to develop a wider portfolio of targeted and tailored brands, not rely on a one size fits all. And being a global brand is no longer enough, as Nestle and Swiss watches are finding to their cost.
Companies, governments and consumers outside China will need to recognise that this is not a zero sum game, that China’s growth and success are not a threat, do not mean the decline of the USA or Europe. This market represents one of the greatest opportunities ever. Finding ways to meet these enormous demands without plundering the planet disastrously, or repeating the debt fuelled growth of the West will also be a huge challenge.
By Sheila Moorcroft
Sheila has over 20 years experience helping clients capitalise on change – identifying changes in their business environment, assessing the implications and responding effectively to them. As Research Director at Shaping Tomorrow she has completed many futures projects on topics as diverse as health care, telecommunications, innovation management, and premium products for clients in the public and private sectors. Sheila also writes a weekly Trend Alert to highlight changes that might affect a wide range of organisations. www.ShapingTomorrow.com