In 2010, China became the country to watch when it leapfrogged Japan to become the world’s second-largest economy, a title held by Japan for more than 40 years.
When McKinsey released their 2012 report shortly after, Meet the 2020 Chinese Consumer, they predicted huge socioeconomic changes off the back of China’s unprecedented industrialisation taking place throughout much of the nation. Since its release, the report has proven to be a major asset for businesses in, or looking to break into the lucrative China market.
Looking back at the report half a decade later, it is clear that the majority of McKinsey’s 2012 predictions have held steady. However, recent years have shown that the Chinese consumer is continuously evolving in often unprecedented ways. So how close are McKinsey’s predictions to the reality of the modern day Chinese consumer?
China’s fluctuating and complex economy is under continued global scrutiny
Slowed growth, geographical disparities and depreciating renminbi are all major concerns for investors across the market. However, the confidence of the Chinese consumer remains, on average, markedly high. With this complexity in mind, being able to accurately profile the modern Chinese consumer is integral for sustainable business success.
McKinsey’s 2012 report correctly projected this profile in preparation for the following years of societal, economic and demographic changes across the country.
Demographic and socio-demographic projections in McKinsey’s 2012 report were not unlike those in industrialised countries such as Japan, South Korea and Taiwan. A burgeoning mainstream class was projected to encompass over half of the population by 2020 (up from a significantly lower 6% in 2010!) - drowning out poorer categories, whilst accommodating slight increases in affluent populations. The emerging senior class was also set to increase, along with their associated spending behaviours.
The report’s geographic findings noted that businesses should treat regions in China almost as separate countries. Follow-up findings in 2016 confirmed these stark regional disparities. Although some cities have professed increasingly optimistic views on their financial futures, other cities have seen negative growth, and require an adapted approach.
The gap is growing between China's burgeoning middle class in the cities and the less wealthy regions
More money, more spending
Overall, recent studies have shown that the practice of saving over spending has increased. So although salaries are growing, spending is not necessarily directly proportional. Knowing where this spending is taking place, and on what, is vital to understanding its implications.
McKinsey’s 2012 study rightly projected that necessities like food would be overshadowed by more luxurious, commodities. Recent studies have confirmed and attributed this to a change in Chinese attitude towards “value”: premium quality trumps quantity. In other words, where general spending has decreased, the amount consumers are willing to pay for traded-up, quality products has increased.
While we have seen that Chinese consumers are increasingly trading up from mass products to premium products, they are becoming more selective with their purchases. Brand loyalty has not increased to such an extent that most consumers would have a go-to brand, however they do tend to have a shortlist of brands that they rely on, making it difficult for new companies to break into the market.
Services are also encroaching on product sales – a finding not fully explored in the 2012 paper. Happiness trumps wealth, and family-oriented attitudes with a focus on “experiences over items” is transforming the Chinese retail space. Spending on international travel, entertainment, recreational activities and even exercise now form a large and integral part of Chinese consumer patterns, the latter following global increases in “healthy lifestyle” popularity. Products associated with these experiences, like fitness wearables, have seen consequent success.
Into the world
China’s value proposition has often been its price point. Cheap costs make mass production in China sustainable, and they remain leaders in the sector. However, with an increased focus on premium products, international brands continue to lead top-tier spending – particularly in apparel and cosmetics. Although a lot of this international spending occurs during international travel (a third of Chinese tourists choose their destinations based on shopping opportunities), eCommerce clearly plays a major role in this sphere.
In a recent interview, McKinsey principals Fang Gong and Daniel Zipser discussed the duality of online and offline retail spaces. Although online shopping is overwhelming global retail spaces, physical retail is equally growing to give consumers a space to experience their products.
McKinsey’s 2016 study also claimed that mobile penetration in China went from zero to 25% of the population within five years, and mobile payments are exponentially increasing in well-connected cities.
Mobile phone use has increased from 0% to 25%
Making it all easier
It is clear that China is one of the trickiest evolving business markets to exist in and break into. In addition, general market access has always been tricky for foreign businesses, thanks to import regulations and taxes on foreign goods.
Airwallex are international experts in international trade within the evolving Chinese market. We hold one of the few licenses that allow us to transact in China with real exchange rates, full transparency, and secure, speedy transactions. Our products simplify the inbound and outbound payments process so that your time, resources and attention can be focused on understanding the ever-evolving Chinese consumer.
In the aforementioned interview, McKinsey’s representatives concluded that despite a slowing economy, Chinese consumers remain confident, and will continue to increase spending (albeit in diversified sectors). Let Airwallex connect your business with their confidence, with ultimate ease and cost-efficiency.
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