From a manufacturing powerhouse to an active leader in digital innovation, the countdown has already started. Let’s see 5 consumption trends over the 10 ten years
Nowadays, the PRC is the second world’s largest economy , hi-tech leader and the world’s biggest manufacturing country. After the end of Cultural Revolution, nobody could imagine that China could sit again on the same table of world’s superpowers. China is living it’s own “Chinese dream” and Millennials embody the future of the country as well as the tow of the economic reforms.
Moreover, with government support being a fundamental plus, the country will continue to migrate from an investment- driven model to a consumption- and services-driven model. This will have implications for both multinational and domestic businesses. China’s economy will rely on consumption to grow, and the consumers spurring that growth need to be analysed and understood in order to profit from it.
By the way, there are uncertainties and challenges. A slower middle-class growth could have a very different effect, with consumers refocusing on functional needs. Also,more protectionist and nationalistic policies would reduce consumption and shift Chinese consumers’ attitudes away from a Western lifestyle, contributing to a higher household savings rate.
Trend 1: The growth of the Middle Class is defining consumption
Over the next ten years, household consumption will grow by an average 6% annually to reach RMB 56 trillion, with the middle class potentially representing an estimated 65% of households. By 2027, household income will have increased by around 5% annually, with industrial jobs redistributed to service sector jobs. Population movement will occur from rural to urban areas, where incomes are higher, resulting in low- and lower-middle-income households, with more spending advancing from necessities to discretionary product categories. China’s government is supportive of the transition to a consumption- and services-driven economy, implementing policies to encourage spending in such areas as health and pensions, discouraging saving.
Plus, China has an aging population that has created new demands. By 2027, an estimated 324 million people will be over 60 years of age. The percentage of working-age labor will decrease while the pressure on social benefits will increase, creating economic challenges as well as expand opportunities for products and services tailored to this demographic. Elderly consumers spend more on health-related expenses such as dietary supplements, disease treatments, senior care and insurance. Optimum price is important. There is also a demand for senior housing as many of the new elderly will not be able to rely on their children for care.
Trend 2, New Millennials are Growing up
Children born in the 1990s will make up 15% of the population, and those born in the 2000s will represent 21% of China’s population, in 2027. This younger demographic differs from predecessors in two aspects. First, they received financial support from their elders, and they grew up in a life improved by technology and digitalization. They consume more, are less price-conscious and seek instant gratification. They demand higher standards for convenience, quality and variety. Premium and personalized products and services are required to meet the needs of this demographic. Then housing, health and education are areas that will continue to grow, due to larger families and change of lifestyle.
Trend 3: Sharing Economy in China. New Way of Consumption or Economic Revolution?
Due to China’s socio-economic history, a brand-new sharing economy is changing Chinese people’s habits and lifestyles. A change that goes hand in hand with the country’s shift towards sustainability. The sharing economy is an economic model in which access to goods and services is shared between private individuals, typically by means of the internet. The system revolves around short-term renting of resources, which is often facilitated by a community-based online platform.
The sharing economy, which took hold so easily in China, was estimated to be worth about RMB 3.45 trillion ($520 billion) domestically in 2016, a sum that included spending both by consumers and businesses. Chinese consumers already have a culture of paying for access rather than ownership, and by 2027, this model of consumption will become a routine part of their lives.
Areas such as taxi transportation and bicycle sharing, are examples of how the sharing economy can be a success, giving more people access to goods and services than ever before. China is home to more sharing economy startups than any other country in the world. Technology is shrinking the convenience gap between sharing and owning.
Trend 4: From fintech to New Retail is time for digitalization
By 2027, technology will dramatically reshape the retail industry in China, such as the IoT Internet of Things) and AI (Artificial Intelligence) digitalize real-world actions (widgets to digits), self-driving vehicles and drones improve logistics, and augmented reality has changed the shopping experience. The retail sector will benefit from the integration of data and the customer’s journey between offline and online shopping, which will deliver an upgraded experience.
The role of physical stores will transform. Most small-format offline channels will be digitalized and linked to online platforms, and overcome the barriers related to economies of scale. Throughout the customer journey, most successful retailers will engage with customers via online or offline channels. Cashless transactions and ubiquitous traceability of consumption will become the norm.
Consider that Chinese third-party mobile payments total in the trillions of dollars—compared with billions in the United States. By 2027, almost all daily transactions will be on mobile devices and digitally traceable, giving companies the means to generate invaluable consumer insights that will help them develop better-tailored products or services.
Trend 5: The split in consumers’ lifestyle preferences
Over the past decade, two influences have come to shape Chinese consumers’ attitudes toward culture and lifestyle. Firstly, consumers are more affluent and have greater access to Western culture and lifestyle, thanks to China’s open policy and technological development. Secondly, the government encourages strengthening China’s cultural heritage by incorporating it into national education.
The split in consumers’ lifestyle preference is almost evenly divided across income groups, generations and geography. It is also visible in consumers’ chosen sources of trusted information. Personalized content in media and personalized marketing are leading the way in China. By 2027, the personalization of products and services will become a necessity for businesses. The emergence of AI, robotics, 3-D printing and other technologies has reduced the cost of personalizing product design, manufacturing and consumer communications.
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