China's middle income consumers are rapidly changing both their lifestyles and behaviours, and this transformation is now playing a significant part in China moving from an investment and export led growth to a consumption growth economy. This is a key finding of a recent report from the China British Business Council (www.cbbc.org) and is good news for those looking to enter or expand existing operations in China now and over the next decade.
As China continues to move towards a consumption led economy, we'll look at the increasing diversity, complexities and opportunities to help entrepreneurs and small and large organisations target China's important middle income consumers.
As the news headlines often report, China is going through a period of rapid growth, urbanisation and expanding middle population, and the numbers speak for themselves;
• 160 cities in China now have a population over 1 million
• 725 million people already live in China's cities
• China has 260 million urban households (and 100 million will be added over the next 10 years)
• GDP growth has exceeded 8% a year for last 10 years (2014 forecast: 7.5%)
The potential business opportunities are immense, particularly within luxury retail, e-commerce, healthcare, education, property, automotive, leisure and entertainment, and travel and tourism.
Identifying China's middle income consumers
China's middle income consumers are typically younger than in many other countries, with more than 50% aged under 45 years. This statistic is reflected in consumer behaviour and lifestyle trends.
Research house Mintel, which contributed to the report, classifies middle income consumers into four types: progressive affluent spenders, trendy aspirers, value-led buyers and conservative spenders. It's the progressive affluent spenders and trendy aspirers who are the most likely to buy western brands, and over 70% of China's middle income consumers do just this. However, most in this category claim that quality is more important than brand, a trend that is shifting purchasing from brand-led to more personal choices, experimental benefits, quality and design-led.
The research found that three main factors help China's middle income earners enjoy a happy life: a good work-life balance, a good circle of friends and family and having enough time to unwind and relax. In short, simple pleasures, family and job security are what matters.
Saving and buying trends
For this middle income group, economic and family pressures encourage a high propensity to save. Indeed, as the China British Business Council reports estimates, middle income consumers in the country save around 30% of their salary; a figure that increases as earnings rise. Reasons include; children's education, elderly parent's care, property purchases, financial investments, marriage and planning a family.
When it comes to buying, Chinese consumers account for around 30% of the global luxury market and it is forecast that they will become the world's largest luxury goods market by 2020**. This is also influencing global markets with around two-thirds of total luxury spending by Chinese nationals now done overseas. According to the report, luxury items with a value of between £500-£1,000, are typically bought by consumers 35 years old or younger.
Middle income earners are also spending a significant amount on leisure and entertainment, new cars, properties and private healthcare. Healthcare in the country is a huge concern due to the ageing population and increasing rates of chronic diseases.
As tastes and behaviours of this group change middle income earners are evolving into more independent travellers and choosing destinations for many other reasons than just shopping! Although they do still spend an average of £2,000 per trip.*
When it comes to spending, this group of consumers are extremely techno-savvy, with over 95% owning a smart phone and a computer*** and 85% shopping online.**** Purchasing behaviour of middle income earners in China is driving the growth of online retail in a big way. The China-Britain Business Council Report estimates that middle income consumers on average spend £100 per month online.
All of this is of course good news for countries and companies looking to expand into China and bring in expatriate employees to build organisations. But a word of warning – China still faces substantial challenges which often disproportionately affect middle income consumers. The long-standing one-child policy is creating financial pressures as couples look to support elderly parents. Property prices are rising fast, as is price inflation, and there are knock on effects from urbanisation on environment, health welfare and stability.
*China-Britain Business Council Report www.cbbc.org
** Bain & Co 2013
***Mintel, "Consumer Lifestyle: China's Middle Class" June 2012
****iResearch. "2012-2013 China Online Shopper Behaviour report." April 2013