While Covid might have thrown a curve ball at consumer spending over the short term in China, the pandemic’s impact isn’t going to be permanent. Indeed, hundreds of millions of Chinese consumers are going to be crucial for the next generation of global growth.
That was why it was worth listening to an hour of conversation on China’s consumer landscape between Jonathan Woetzel, McKinsey Global Institute Director and Senior Partner, Shanghai, and HSBC’s Herald van der Linde, Head of Equity Strategy Asia-Pacific, and Lina Yan, China Consumer Analyst.
They were talking last week as part of the ninth annual HSBC China Conference – a two-week programme that featured everything from semiconductors to supply chains, alongside briefings from businesspeople in sectors like green energy, electric vehicles and artificial intelligence.
Other topics on the wide-ranging agenda included backgrounders on the Common Prosperity plan; advice on how to navigate the world of ESG; and insights on what’s on the horizon for China’s equity markets.
The session on China’s consumers came on the same day as news that retail sales fell 11% in April versus a year earlier. The forecasts for future spending are a lot more bullish, however, as China’s middle class grows to more than 500 million people.
Behind the numbers, here are three of the themes that came up for discussion last week on China’s rapidly evolving consumer sector.
Singletons and the empty nesters
One trend that’s shaping the consumer landscape is changes in how people are choosing to live, with 15% of homes in China now classified as single-person households. Living arrangements like these should be good news for pet food firms and veterinary practices, for instance, because people living alone often spend more on animals as companions. The new generation of singletons is spawning a bewildering array of other services, including capsule-like gyms for solo workouts and karaoke cabins for solitary singers. Streaming platforms now offer virtual boyfriends and girlfriends for those looking for love and friendship too.
A second theme that’s better understood about Chinese society is how it is aging. Today’s population pyramid bulges out in age groups between 30 and 50 but the biggest of the cohorts by 2050 will be between 50 and 80. That means that millions more people will be living and working longer, unleashing another wave of new spending power.
This scenario is going to be a fundamental change on much of the last 40 years in China, Woetzel says, when wealth has been more of a phenomenon for younger people. Older folk had few opportunities to get rich before the onset of the reform era and often missed out on the explosion in wealth creation that followed.
Now the older generation is getting a chance to grab a bigger piece of the pie, including the hundreds of millions of people who have purchased their own apartments since housing reforms in the late 1980s.
HSBC’s van der Linde makes the point that an aging society can be positive for growth, despite media narratives that often depict older people as some kind of burden. In fact, he’s been tracking the impact of demographic trends like these for some time, with interesting findings on China’s ‘empty nesters’, or couples whose children have grown up and moved elsewhere.
Empty nesters are typically middle-aged and they make up about a fifth of the richest families in China. Millions of them are looking to ‘trade up’ in their spending now that their children have left home, which is spilling over into stronger sales in sectors like health and wellness, entertainment and travel.
“They have paid off the house and the kids are gone. So they have more money to spend on new cars and longer holidays, or a better bottle of wine on an evening out,” van der Linde explained in a previous interview on the theme with WiC.
Chinese e-commerce is still booming
Talk then turned to the younger generations that have ignited the e-commerce era in China. With online sales now more than twice the size of America’s, China’s e-commerce sector is easily the world’s most advanced in reaching out to a market of more than a billion digital consumers. It also got a boost from the pandemic as locked-down households looked online for more of their spending.
One of the themes in the spotlight is social commerce, which now absorbs more than four hours of time spent online each day by consumers, according to some surveys. The melding of content and commerce has brought an explosion in livestreaming, for example, where sales have surged during the pandemic, often at the urging of celebrity ‘influencers’ who build up legions of loyal followers.
Livestreaming is another of the factors in how China’s retail world is shifting on its axis. Woetzel says that brands that do best are creating compelling connections between the online and offline worlds by supercharging sales through social commerce but keeping up investment in physical stores as “showrooms” where shoppers can hang out with their friends and enjoy themselves.
Gen Z is a force to be reckoned with
Powering many of the latest trends in the marketplace is the rise of Gen Z consumers, or people younger than 25, who make up about 16% of total consumption.
Gen Z shoppers are digitally savvy and much more willing to get into consumer debt than their predecessors. They are also happy to experiment: some of the research suggests that as many as 80% of the group buys something different in their regular shopping trips. Of course, brand loyalties can be fleeting, with plenty of changes in the choice of products and the places they are purchased.
Another feature of these younger shoppers is that they are interested in environmental issues and more prepared to pay a premium for brands with a reputation for sustainability.
Consumer interest in greener choices is clearest in the growing adoption of electric vehicles but it’s also feeding into the product development cycle in other areas like fashion and apparel.
“There are millions of environmental consumers that are willing to put their money where their mouth is – it’s a trend that’s here to stay in China,” Woetzel reckons.
The findings are similar in the latest China Deluxe survey from HSBC’s Global Consumer & Retail team, which asked 2,000 wealthier respondents from mainland China about their preferences for premium products. 89% of respondents said they were spending more money on products advertised as sustainable, while 81% said they would be very or somewhat likely to purchase an electric vehicle.
The same survey looked promising for the prospects of the luxury brands, with most of the respondents planning a premium purchase in the year ahead. 80% of those who had purchased a luxury product before were planning to get another one within the next 12 months, for instance.
Two years of restrictions on international travel didn’t seem to have dented interest in holidaying either, with 90% of respondents planning at least one trip abroad in the year after Covid has subsided.
China’s consumers are a resilient crowd, it seems, despite the disruptions of the pandemic.
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