The Chinese economy may have slowed down, but Chinese consumers haven’t. In 2015, consumer spending increased approximately 13 percent, compared to less than 7 percent growth in GDP.
A recent McKinsey report indicates that Chinese consumers have remained confident despite the economy slowing down. Among the 10,000 individuals surveyed by McKinsey, 55 percent expected their incomes would increase significantly over the next five years, compared to just 32 percent of consumers in the United States and 30 percent in the United Kingdom believed so.
The Chinese middle class now represents one-half of China’s population. Although they are new consumers, they are maturing and modernizing rapidly. Three characteristics are emerging:
Chinese consumers are becoming increasingly health conscious. Food safety is a major concern among the Chinese middle class. Today, Chinese are eating healthier. More than 50 percent of people surveyed prefer fresh juices to carbonated soft drinks, and organic and nutritious foods to ice cream and fast food. This is a startling contrast to only a few years ago when western fast food was highly popular.
The Chinese are exercising more. 73 percent of Chinese are participating in sports activities, compared to 70 percent in the U.S. The sports apparel industry has seen tremendous growth in the last year, fueled by active middle class consumers.
Health concerns are a major driver for preventative medical care such as private insurance, regular physical exams, and lifestyle apps. Many urban yuppies wear devices that monitor their health and activities. All of this is fairly new and has developed quickly in the last few years.
More Chinese believe that success means having a happy family. Shopping has become a family activity, thanks to the development of shopping malls. Two-thirds of consumers say that shopping with family is the best way to spend time with them, an increase of 21 percentage point compared to three years ago.
A typical Chinese family includes husband and wife, one child, and grandparents. A weekend outing to the shopping mall allows them to combine shopping, dining, and entertainment experiences for the entire family. For example, while the wife is shopping, the husband can take the child to a playground for fun activities. The family could have lunch together in the shopping mall. They can also escape into a spa or hop into a gym. In the evening, the grandparents can take the child home early so that the husband and wife can enjoy dinner or a movie – all are part of their shopping experience.
While e-commerce has grown exponentially, physical retail, particularly shopping malls, also appeal to Chinese consumers as they offer a “retail-tainment” experience that the entire family can enjoy.
In 2015, more than 70 million Chinese consumers traveled overseas. Shopping is an integral part of their international travel experience. Some 80 percent of them made overseas purchases, and nearly 30 percent actually based their choice of a travel destination on shopping opportunities. Chinese tourists spent $215 billion on outbound travel last year, a rise of 53 percent on the previous year.
Their international duty-free shopping increased 58 percent last year. Around half of their watch and handbag purchases are made overseas. Apparel and cosmetics are also the most frequently purchased categories. Overall, overseas purchases account for approximately 25 percent of their annual consumption.
One of the most striking characteristics of Chinese consumers is their speed in adopting new trends. They have quickly gotten past beyond basic needs and moved up the ladder to premium goods and services. They now spend significantly more on travel as well as leisure and entertainment. For example, last year China’s box-office revenues soared by nearly 50 percent to $6.8 billion.
The McKinsey report indicates that Chinese consumers, which comprise one-half of China’s population, represent 75 percent of China’s GDP. If this continues to hold true, the Chinese economy is transitioning to a “service-oriented’ economy, where the Chinese middle class is taking up the slack of China’s slowing exports and industrial investments.
For consumer products and services companies, there are reasons to be optimistic. The Chinese still save significantly more than their western counterparts. That means there is still more potential to be tapped. In past decades, Chinese consumers have shown the world a new face every few years. They have been surprisingly resilient, driven by the desire for a better life. They are likely to continue to amaze the world in the years to come.