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The Australia-China Chamber of Commerce and Industry of New South
Wales Newsletter No. 19 12 May 2000 |
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 CONTENTS Who is Acquiring the Greatest Amount of Spending Power? What Are the Big Spenders Purchasing? Preferences of the 40-to-60 Age Group Supermarket Versus the Internet |
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ACCCI ELECTRONIC NEWSLETTER NO. 19 The focus for this issue is the New Consumerism
in China. The potentially lucrative domestic market in China was a major
factor in the accumulated foreign direct investment of US$300 billion over
the past two decades. Approximately 90 per cent of this investment occurred
after 1993, which represents the beginning of a rapid rise in retail sales of
consumer goods in China. The highest rate of growth for retail sales
occurred in 1994 (30.5 per cent in nominal terms). Since then, the rate of
growth declined to 11.2 per cent in 1997 and to less than 10 per cent in 1999
(also in nominal terms). Recent trends point to a modest recovery in the
growth of consumer spending this year. We pose the question: Is this recovery likely
to be associated with different spending patterns? |
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WHO IS ACQUIRING THE
GREATEST AMOUNT OF SPENDING POWER? A recent survey by China's Bureau of Statistics,
with assistance from seven other government departments, indicated that young
urban residents in the coastal provinces with university degrees are becoming
the top income earners. More specifically: ·
Among
the 170,000 residents surveyed on a nation-wide basis, people with university
degrees (comprising 12 percent of the sample) had the highest average income
of 980 yuan. Illiterate persons were at the bottom with an average income of
only 481 yuan. ·
Chinese
aged 41 to 45 earn 30 per cent less, on the average, than those under 30 do.
The lower income of the middle-aged group arises mainly from the disruption
of the educational system during the Cultural Revolution from 1966 to 1976. ·
In
August 1999, the per capita income of 6 per cent of urban families was less
than 100 yuan per month. This group was concentrated in Heilongjiang, Shanxi,
Qinghai, Inner Mongolia and Xinjiang Uygur autonomous regions, where they accounted from more than
10 per cent of the people surveyed in the regional cities. In contrast, in
the coastal cities, such as Beijing and Tianjin, impoverished urban families
comprised less than one per cent. "China's
Employment, Distribution Structures Change", People's Daily, 5
May 2000. |
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WHAT ARE THE "BIG SPENDERS"
PURCHASING? China's one-child policy was introduced in 1979 in
an attempt to limit population growth. This resulted in a distinct bulge in
consumers who were born shortly before the controls took effect. These people
had the advantage of a better education and are therefore among the currently
high-income earners. The families formed by these people have only one
child, thus releasing a greater amount of income for household consumer
goods. This contrasts with expenditure patterns of their parents who spent
heavily on the needs of more than one child. As assessed by advertising outlays, in 1999 a large
share was used to promote higher-quality-of-life products. The ranking of the
"top ten" products advertised on China's 320 television stations is
as follows: Pharmaceuticals - RMB 8.75 billion Cosmetics - RMB 6.13 billion Beverages - RMB 4.58 billion Electronic appliances - RMB 3.91 billion Food - RMB 3.69 billion Alcohol - RMB 2.76 billion Services - RMB 2.56 billion Post and Telecom - RMB 1.8 billion Cleaning Products -RMB 1.65 billion Household Products - RMB 1.54 billion A slightly different pattern emerged from newspaper
and magazine advertising, but nevertheless reflects generally the trend
toward quality-of-life items: Real Estate - 2.49 billion Computers - RMB 1.79 billion Services - RMB 1.23 billion Electronic Appliances - RMB 1.15 billion Pharmaceutical - RMB 1.15 billion Post and Telecom - RMB 1.12 billion Motor Vehicles - RMB 670 million Entertainment - RMB 530 million Cosmetics - RMB 430 million Industrial Equipment - RMB 380 million China's three largest cities accounted for 16 per
cent of the national total for advertising outlays. "Advertising
Spending Growing Quickly in China", ChinaOnline, 21 April 2000. "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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It has generally been recognised that the younger
Chinese are more aware of global trends than their parents were at the same
age. These trends are nevertheless superimposed on traditional tastes and
values, thus giving them "Chinese characteristics". Asiaweek reporter, Alexandra Seno, suggests that for "music,
fashion and more, the trend capital of China is the capital of Japan". This includes the Chinese girl group Fantasy, who
were little more than three ambitious lasses from Shanghai until they were
despatched for six months to a Tokyo "pop factory". Repackaged,
they returned to China as a hip, in-your-face dance band -- with platform
shoes, spiky hair, midriff-bearing outfits and a fan club. " And it's not just for trends in music that young
Chinese look to Japan. The latest craze in street fashion is found in
Japanese magazines -- which, in turn, are a reflection of all the weird and
eye-popping things going on each day in the faddish Harajuku district of
Tokyo. "Japan is the world capital of kawaii [cuteness]," explains
Guy Murphy of the Bartle Bogle Hegarty ad agency in Singapore. "It
reinterprets products from the U.S. for an Asian palette." The critical element would appear to be the
"reinterpretation". This could presumably be done anywhere in East
Asia, but it is not likely to be done successfully outside East Asia. Chinese born after 1980 grew up with the economic
reforms and have thus witnessed the rapidly changing market system. They are
likely to more aware of foreign brand names and thus exert an influence on
the family purchases that are affected by "brand recognition". The
results of a survey 16,677 people in 30 Chinese cities (from the 1999 AC
Nielsen China Millennium Report) indicated that the following international
products were often used: KFC (fast food) -- 45% In comparison, domestic products that enjoyed
consumer popularity were more likely to be influenced by parental choices: White Cat (dish detergent) -- 51% "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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PREFERENCES OF THE 40-TO-60 AGE GROUP Many foreign enterprises were drawn to China by the
thought of selling a particular product to 1.25 billion Chinese, but two
important discoveries were made. First, whatever the product, China had
attracted a large number of sellers. Second, many Chinese remain relatively
frugal and continue to purchase only the minimum quantities of consumer
goods. The second of these is particularly true for the
40-to-60 age group. The clothing they wear is intended to meet climate and
weather conditions, not international fashions. As quoted in Asiaweek,
a retail consultant stated that many Chinese buy Gucci shirts, but there are
a lot more who only own one shirt. This age group is nevertheless interested in
travel, both inside and outside China. During the recent 5-day May Day
holiday, there was a 15 per cent increase in travel compared to last
October's National Holiday. More than 100,000 Chinese residents travelled
abroad, a 30 per cent increase over last year. Within urban areas, this age group will continue to
purchase television sets, refrigerators and washing machines. It is unlikely,
however, that they will acquire motor vehicles. They may be receptive to
Internet shopping (see below). "China's May Day
Spending Hits US$2.19 Billion", ChinaOnline, 11 May 2000. "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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China has an estimated 130 million people over the
age of 60 -- and about 5,000 of them log on each week to 51666.com, an
Internet portal that caters to the not so sprightly. Co-founder Warran Cai, a
former finance-industry professional, says he thought up the idea (the
portal's numbers sound like "I want to have a happy old age" in
Mandarin) while observing his parents. "They have money to spend, but are
bored," he says. Cai's company recently promoted a Yangtze River cruise.
About 500 people paid US$100 each to be on it. "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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SUPERMARKETS VERSUS THE INTERNET Motorola's vice president and general manager for
its China division suggested recently that the demand for computer chips in
China would grow by more than 33 per cent per year for the next five years.
By 2005, more than half of the world's Internet users is expected to be from
China. Despite an upsurge of advertising on the Internet
in Beijing, e-commerce has not yet made an impact on retail sales in China.
The delivery of merchandise remains unreliable and phone lines in some areas
are relatively poor. Supermarkets continue to thrive. Carrefour of
France, an early foreign entrant, co-owns 22 in China, four of them in
Shanghai. Domestic supermarket chains like Lianhua (1998 turnover: US$510
million) and Hualian (US$395 million) operate hundreds of stores -- including
one in remote Lanzhou, the capital of Gansu province. Open-air markets operate in suburban area where
space is available, but urban development may push them farther from the city
centre. Small family-owned shops continue to exist, but few seem to be
thriving. "Advertising
Spending Growing Quickly in China", ChinaOnline, 21 April 2000. "Motorola
Official: China Chip Market to Grow 33 Per Cent", ChinaOnline, 19
April 2000. "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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Demographic trends combined with a number of other
factors changed consumer-spending patterns during the past five years. A
continuation of these trends will reinforce the patterns. What does this imply for foreign-based suppliers? First, it should not be assumed that products that
sell well in Sydney, or New York or London will necessarily sell well in
China. As we noted, the emerging tastes appear to be a superimposition of new
ones and more traditional ones. Second, what sells well in Beijing will not
necessarily sell well in Shanghai, or Guangzhou or Chongqing. China consists
of 31 provinces, autonomous regions and municipalities that are equal to
provinces. Traditional tastes differ in these regions. To quote a few
examples given by Asiaweek: For Beijing "sweet tooths", the chocolate
of choice is Dove, a simple British confection that comes in bar form. In
Guangzhou, bordering Hong Kong, the choice is more likely to be Ferrero
Rocher, a far more elaborate product imported from continental Europe and
bearing a price tag to match. The difference in preference is not simply
price or taste (though they count). Superstition plays a more important role
in things in the south, and the fact that the European chocolate is wrapped
in gold foil makes it auspicious, particularly as a gift. In Shanghai, Japan's Suntory is the favourite beer,
but ask for it in Beijing or Guangzhou and the barman is likely to give you a
quizzical look and offer you a Yanjing or Zhujiang instead. Nearly one person
in two in Fuzhou owns a credit card. In Shanghai, that figure falls to as low
as one in five. In Beijing, the heaviest skin care users are women between
the ages of 20 and 24 and 30 and 34. In Guangzhou, teenagers are the ones who
feel they need the help. Then there is the matter of access to goods.
"For inland places, you can't do your advertising in the same way you
would in a more sophisticated market like Shanghai," says Miranda Li,
Grey Advertising's Hong Kong-based strategic planner for China. In areas
where a full range of products is not available, advertisers often do better
with top-of-mind messages, which inform consumers about the brand without
discussing details. No point wasting your budget on newspaper ads in those
markets, either. Billboards are the thing. Third, commercial practices could benefit from the
typical pattern for economic reform in China, with "two steps forward
and one step backward". The phrase has been associated with a cautious
approach involving selected regional "tryouts" before embarking on
a national campaign. Flexibility in marketing is also likely to pay
dividends. Success stories in the next decade are likely to be
"re-invention" stories that could be subtitled: What we did when we
discovered that Plan A was not working out well. "8 Things You
Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000. |
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Asiaweek: http://cnn.com/ASIANOW/asiaweek/ ChinaOnline: http://www.chinaonline.com People's Daily: http://www.peopledaily.com.cn Send comments on this newsletter to: j.zerby@unsw.edu.au |
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