Chinese Consumers 2024
With the years of the restrictions now in the rear-view mirror, China’s re-opening has been a welcomed relief for both China based businesses as well as global markets. Moreover, for both foreign and local enterprises this means more stimulation within the Chinese economy for 2023 and growth prospects for their operations. However, through the duration of the pandemic we saw a noticeable shift in the behaviour of consumers with more Chinese consumers opting to save money rather than spend it. Here we explore how consumers have changed in recent times and what we can expect to see from Chinese consumers in the year ahead.
The Bank of China (BOC) released a document on the Economic and Financial Outlook 2023, which stated that annual GDP baseline growth is projected to be 5.3% (with a more optimistic estimate projected to be 6.6%).
The Government re-iterated its commitment to the business sector at the 20th CPC National Congress, where they stated they aim to ‘promote recovery and stabilize growth’. The invitation to capable and aligned foreign investors to enter and grow their presence in the country and provide services to Chinese consumers, is seen as an important part of this recovery.
The government has indicated that more focus will be placed on expanding domestic demand, keeping supply chains stable, supporting the private sector and attracting foreign investment (read our article on Encouraged industries for Foreign Investment in China to find out more). With the Chinese economy seeing improvement in 2023 the expectation is that consumption will gradually return to normal.
Encouragement for Foreign Firms
Local businesses sentiment has moved to renewed optimism regarding the Chinese economy. As such, it is an opportune time for those international firms that want to capitalize on the Chinese market, to review their position now that China has re-opened.
It is also good news for established FDIs, because as consumer confidence grows, so will their customer base. This positive sentiment is anticipated to drive consumer spending.
Growing Middle Class in China
It’s worth noting that the Chinese middle class which was once only a fledgling sector of the population is now expanding. According to a working paper by the Asian Development Bank, the further expansion in the middle class indicates a parallel increase in their share of consumption.
Middle class consumers are responsible for the consumption of a vast amount of modern goods and services, and as such, this demand is instrumental in driving the ‘consumption economy’. The large population underscores China’s importance to domestic and international consumer brands. The growth of the middle class and increase in spending power is a major reason why organizations need to give more attention and resources to their China strategy.
Were Consumers Saving to Spend?
Research has shown that during the period the zero-Covid policy was enforced, there was an excess of savings within households in China. This was primarily due to less consumer spending, questions surrounding job stability and a perceived lack of ‘safe’ investments in a very volatile economy (particularly in the property market, which is still experience multiple challenges).
The outlook has become more encouraging however, as consumers also have a more positive outlook for 2023 and China’s Consumer Confidence Index is slowly on the rebound. Our expectation is that there will be a gradual return of confidence towards the robust household consumption to pre-Covid levels.
The Successful Route to Discretionary Consumers
Chinese consumers have always been seen as savvy, but with recent pressures in the country there has been a shift towards potential purchasers doing even more research and self-education around what to buy, when to buy and how to buy.
Businesses will have to be well prepared with in-depth research and easily accessible product information in order to remain relevant to discretionary consumers. Content that allows for consumers to make ‘smarter choices’ is an important consideration for any consumer focussed business.
For a brand to succeed, it must become far more introspective and self-critical. Building relationships with consumers will convert on the fly consumers into real brand ambassadors and brand loyalists.
More Conservative Spending
Sensible spending is a key trend reflected in the data collected. It indicates that there will be less impulsive buying, but rather a more intentional approach (careful and budgeted) to spending. Similarly, consumers have an increased focus in value for money, whether it includes special offers or looking to get the perceived excellent quality from a less luxurious product with the same features.
With this in mind, for any business to remain relevant, it is important for organizations to carefully analyse business strategies within each specific regional market. By focusing on each area and paying attention to the nuances in each region, they can start to develop customer loyalty and gain a greater share of the market.
Businesses are also going to have to look carefully at the supply chain they currently hold. As household spending increases, supply and demand will change and the business will need to be able to meet the demand.
Competition is fierce and delays or bottlenecks will impact the business in a negative way. Meticulous R&D and supply chain management will be a core strategy that can elevate the business and ensure that they keep up with their competition, or even establish a competitive advantage.
Consumer Spending: Sectors of Growth
Health and Wellness – Not surprisingly, recent events have meant that there has been an increased interest in the health and wellness sector. Healthcare and health insurance have become two categories in which an increase in spending is predicted. This ranges from preventative care, from fitness and participation in sport, to careful consideration of health insurance and health care providers.
Life Insurance – Life insurance has also seen an uptick, as consumers see this an opportunity to mitigate a possibly difficult economic phase when family structures come under pressure.
Travel – Chinese consumer’s appetite for travel has not decreased and tourism destinations are eagerly awaiting the full return of Chinese travel groups. There are still some bureaucratic concerns which may hamper this recovery, but this is believed to be short term as the various (visa) processes become streamlined and Covid policies from diverse destinations are becoming less restrictive.
Entertainment – restaurants, cinemas, theatres, and theme parks have once again become part of daily life. There is already a high demand in entertainment activities and combined with domestic travel, the uptick is set to continue.
Slow and Steady Approach
In order for businesses to capitalize on the ‘new’ approach Chinese consumers have adopted, a slower and more steady approach will be required. Earning potential from the Chinese market is still highly attractive, due to the sheer scale of the Chinese consumer market, but businesses will find customers are looking for excellent better quality products which are more premium, but now may be more conservative with their spending.
The challenge will be for firms to find the right recipe for success, but the opportunities are definitely there. Finding them, investigating them appropriately and then determining the best investment approach for each – that will be the business challenge. A cohesive and structured approach is required and businesses will need to carefully leverage their various divisions accordingly.
By taking a long-term view to laying the correct foundations for any business going forward, FDI’s can definitely add an edge to their future role in these consumer markets. In this way they will ensure that they’re able to capitalise on the potential of these economies sustainably for long term growth.
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