Here Comes the Young! Changing Consumption Behavior in China
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Here Comes the Young! Changing Consumption Behavior in China

Despite economic slowdown China remains a growing consumer market. However, we can observe a visible consumption behavior change. It is the young and the rural Chinese consumers, who are going to have more to say.

With the population of over 1.3 billion and GDP per capita of over USD 7,572 China has been considered an immense market of hungry consumers willing to spend every additional dollar on both luxury and day-to-day products. Shopping, shopping, shopping! And… more shopping! Hunger for commodities among Chinese has long seemed to be endless and the future bright and straight. However, according to the ninth edition of the Credit Suisse Research Institute's "Emerging Consumer Survey" based on the multi-year database of nine key emerging economies – Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Turkey and South Africa – there is a strong feeling of a consumer shift around the corner. The picture is not exceptionally favorable. First of all, a general drop in confidence is visible. This leads to postponing high-value purchases to the undetermined future. "The time is not ideal", the survey cites the respondents. But is it the same for Chinese consumers? Has their consumer behavior changed recently? Is the tendency to cut-back on luxury spending in China a steady trend? What role do young Chinese consumers play? Answers to these questions are undoubtedly worth billions of dollars.

A Gloomy Picture?

According to CSRI survey, among the nine emerging markets, China (which topped the consumer scorecard in 2014) slipped down to the fifth place this year. One of the factors of this dramatic change is a mere 5 percent MSCI index growth observed in 2014 compared to Indonesia's 24 percent, India's 22 percent and Turkey's 17 percent. The other factor is definitely the effect of the anti-corruption measures introduced by Chinese government in 2014. Combined with a notable fall in the household income expectation for next 12 months and a collapse of stock market earlier this year, this leads to a rather gloomy picture. Are Chinese customers really going to stop shopping?

The Youth Is the Future…

The statistical data suggests that consumer optimism in China rests with the younger generation. It can be well explained by one of the characteristics of growing economies – it is the young who have income and wealth to increase consumption. The young have the money, are more optimistic and willing to spend every extra dollar than the elder. There is something special about Chinese young customers. They are predominantly the offspring of Chinese government's one-child policy – single children of middle- to upper-class families, a new generation much more willing to shop than their parents and grandparents. And they shop lavishly, not necessarily on the first-need commodities. A trip to Paris with big spending on renowned brands? Yes! And coffee for a hilarious amount of money, at home.

The strongest market segment for growth in car ownership is the 18-29 year old bracket.

And, with the increase in the number of dollar millionaires in China from 1.181 million in 2014 to 1.333 million this year, this is the future trend. The most recent Credit Suisse's "Global Wealth Report" estimates the size of Chinese middle-class at 109 million people. It is more than in the US, where the middle-class is estimated at 92 million.

Commodities on the Things-to-Buy List

Because of that, although household goods and electronics still account for around 50 percent of overall retail spending in China, there are other sectors which look particularly promising for Chinese consumer market: consumer credit, education, beauty products and tourism. Luxury tourism, of course, combined with luxury shopping.

One traditionally strong commodity remains on the top of things-to-buy list of Chinese – a car. 43 percent of respondents now have a car in their household, up from 22 percent in 2010. The growth in ownership of this age bracket in 2014 was 43 percent versus 19 percent for China as a whole." And this trend will continue.

E-shopping Is on the Rise

One of the results of the generational shift mentioned above is the change in the mode of shopping. Special attention should be paid to online shopping as particularly promising way of trading commodities and, increasingly, services. Growing popularity of e-commerce among Chinese follows the increase in internet access from 66 percent of respondents in 2011 to 71 percent four years later. According to the quoted survey "65 percent of respondents claiming to have made a purchase online during the past six months and more than 70 percent of internet users in China that are younger than 30 years shop online". And it is not only about on-line shopping. Online banking and travel as well as e-learning are also on the rise. According to the CSRI survey, the share of Chinese consumers expecting to spend online during the next six months remains high at around 35 percent and "online shopping volumes in China are likely to increase 2.5 times during the next three years and reach an estimated 728 billion dollars by 2016".

The Rural Chinese will Follow...

The wind of change in the Chinese consumer market is not only about the young and urban population. Actually, one more meaningful trend can be spotted. It is a considerable increase of purchasing power of rural Chinese and higher income growth expectations compared to urban population. This combined with increase of their share in buying goods online (which currently accounts for 64 percent and has doubled within the past 4 years) creates a very positive outlook. The rural population is chasing the urban one. Although they have a long way to go, the usefulness of online shopping will help them in this chase.

The Future Is Not Dark

Despite some gloomy projections, China remains a huge and growing consumer market. However, there are some apparent changes in consumer behavior. It is young and rural Chinese consumers, who are going to play an increasingly important role in this huge market. Luxury and e-commerce are the keywords. The retailers must get ready for this!