Even as many in the developed economies are complaining about the somewhat crass behaviours of tourists from China at their plush stores, on airplanes and in their formidable art galleries or museums, there is no stopping of the influx of Chinese consumers the world over. The truth is, you don’t want to stop them coming. In the current sluggish markets around the globe, they are probably your much sought after consumer dollars today and for some time henceforth.
According to the World Bank data for 2014, household final consumption expenditure as a percentage of GDP (Gross Domestic Product) in China was 37.4%, this compares with North America’s 67.3%, Euro Area's 55.9% and East Asia & Pacific's 50.4%.
Based on The Demand Institute's¹ study of a modelled scenario where China's GDP growth slowed from 7% to 4% by 2019 and consumption reaching 46% of GDP by 2025, total spending could reach US$67 trillion for the period from 2015 to 2025.
KEY DRIVERS FOR A CONSUMER BOOM
So, what is driving the consumer growth in China?
a. Abolishment of one-child policy in China effective December 2015. Estimates of extra births per year from 2017 ranges from 2.5 million to 8 million.
b. In ANZ Research's report 'Sleeping Giant: China's Consumers', per capita disposable income in the urban areas is forecast to rise 4-fold from US$8,555 in 2015 to US$31,682 by 2030.
c. As projected by McKinsey Global Institute (Cityscope database), China's working-age (15-59) population living in large cities will grow from 54% currently to 72% by 2030.
d. China continues to expand faster than the global economy.
e. Pension reforms and better options for medical insurance schemes will help moderate savings rate by reducing precautionary savings.
f. Aspirational spending would continue to increase as the Chinese consumers gravitate towards premium brands on the back of higher disposable income.
g. Further liberalisation of the financial sector should offer better access to credit for the Chinese consumers.
Based on a survey conducted by McKinsey and published in April 2016, consumer confidence in China has not changed over the last three years although there are some regional differences. Consumer confidence in the coastal area remains high whereas the north and north-east have seen a decline.
SHIFT IN CONSUMER TRENDS
There is an ongoing shift from demand for products to demand for services as the Chinese consumer market matures. Demand for services such as education, entertainment and travel is expected to grow exponentially. As consumers become more sophisticated there will be a trading-up from mass-market to premium brands. Brand loyalty is expected to increase.
Mobile payment penetration in China went from 0% in 2011 to 25% of population in 2015. The merging of online and offline retail is expected to further transform the marketplace. Online consumption is projected to increase by 20% annually through 2020.
In conclusion, Chinese policymakers are keen to manage a smooth transformation of China's economy from the early growth model of savings, investment and export to a more enduring model of domestic consumption growth.
With China's consumption share of GDP currently at below 40%, there is still plenty of headroom for expansion. The rest of the world will watch with keen interest as the sheer size of the Chinese consumers will without a doubt affect the global consumption pattern in the decades to come.
Note: 1. A think-tank jointly run by The Conference Board and Nielsen