Despite the continuous growth of Chinese purchasing power, PRC middle-class seem to tighten its belt. But while city life challenges the “big spenders”, new rural customers get in the game
The latest big Global Shopping Festival revealed a slight change in Chinese customers purchasing trend. Despite the market’s growth is still strong, domestic consumption seems to experience an unexpected slowdown.
According to CEIC’s report, retail sales increased by a robust 9.3% in the first three-quarters of 2018. However, these data seemed disappointing compared to last year’s growth of 10.4%.
Nevertheless, the purchasing power has never been so strong. China has rapidly transitioned from a predominantly lower-middle-class society to an upper-middle and affluent class over the past decade. As NY bank Morgan Stanley highlights, China will see a significant reduction of the low-income population, which will decrease from 36.9% as in 2015 to 11% by 2030.
The Chinese “big spenders” will grow to 14.5% of the population by the end of PRC’s Next Generation Artificial Intelligence Development Plan. No more crazy shopping, just smart purchases.
Even though the Chinese population is now able to buy more if compared to previous generations, now Millenials seem to return to an old “traditional” saving trend.
The increase in the cost of living in big cities could suggest that the population was forced to tighten their belts. Yet the truth is that the Chinese today like to spend, they only changed their consumption habits. No more crazy shopping, just smart purchases.
©ZhangKai. Beijing, Guomao quartier. While first-tier cities continue to be consumer culture hubs, Chinese tourists spend an average over $1,000 per day when they are traveling outside China’s borders.
One of the reasons for this domestic consumption slowdown is because Chinese spend beyond country’s borders. Along with raising levels of income, in fact, travel has experienced a significant growth with an increasing number of Chinese traveling overseas for their vacations.
According to the China National Tourism Administration, in 2017 tourism experienced an increase of 7% from the previous year while outbound Chinese tourism consumption has risen steadily. As reported by the International Association of Tour Managers, in terms of average total annual spending, Chinese overseas spending for 2018 is estimated to reach $ 5,715 ranking first worldwide with a growth of 3% year-on-year.
For example, 52-year-old Zhang Xue, a bank manager from Canton, said that “last year I went to Tuscany for 10 days, visiting places like Siena, Argentario, San Gimignano and much more. We have chosen hotels online. This year my wife and I plan a holiday in Bourgogne, France”.
©AirChina.cn. Chengdu Shuangliu International Airport. Among the cities in China, Chengdu has leapfrogged over Guangzhou and Shenzhen to become one of the top three sources of outbound Chinese tourists.
What is new is the DIY tourism. Armed with apps like Ctrip, the middle class does not go to the travel agency anymore, but it builds its own journey.
Like Ke Yijie, a 30-years-old architect from Shanghai: “I preferred to move in a less central area of the city to save money. But doing so I have a bigger budget for my travels. This year I have planned a tour of Indonesia”.
However, tourism is not the only reason Chinese spend their money beyond borders. In China, many families decide to send their children to study abroad to offer them a better education. Thanks to the fact that there is an ever-increasing number of wealthy families who can afford to give a foreign study stay to their children, Chinese families often get to spend more than $ 50,000 a year for their living.
Along with the improved economic condition of the average family in China, and the rise of the middle-class, more families are able to sponsor their young generations for overseas adventures.
This phenomenon began in 1979 when Deng Xiaoping decided to send the best students to build their bones abroad in order to create labor force and intelligence for the season of reforms and openings. It was necessary not only to attract foreign investments but also to acquire knowledge.
Therefore, at least one and a half million Chinese have studied overseas in the last three decades, thanks also to a scholarship program to strengthen relationships in the higher education field between South-East Asian countries and the Pacific.
©Photohunter. Xian. Cities such as Chengdu, Xian or Chongqing will drive PRC consumptions in the future.
The Chinese Ministry of Education recorded 608,400 study abroad students in 2017. The data also revealed that while the State supported only 31,200 students, 88.97% of the total studied abroad at their own expense.
Currently, the Middle Kingdom is the largest source of international students to many countries. The result of this behavior is that families whose children are studying in a foreign country are more likely to spend more money on the students’ living compared to money spent on their own in China. Especially considering the large travel expenses involved in the visits.
For example, Chinese students make up 31% of all international students enrolled in Australia, the highest level ever reached in the country. One of the reasons Chinese choose Australia for their studying is the temporary graduate visa which allows international students to stay in the country and work for up to four years after they graduate.
Moreover, during the last Alibaba’s Single Day, consumption data released by e-commerce platforms recorded an unprecedented sales record even though it was mostly supported by the new big emerging cities.
Although the first-tier cities – such as Beijing, Guangzhou, Shanghai, and Shenzhen – continue to be home to the largest number of “big spenders“, netizens have mostly bought useful products for everyday life. Compared to a mass shopping frenzy, this year Millenials preferred to spend their money not only on home supplies and mobile phones but also on home detergents and napkins.
©Alizila.com. Real-time data technology not only helped Alibaba provide the latest sales updates but it also helped to optimize the product layout on its web pages during the Singles Day in order to offer a better and more personalized experience to the customer.
This smart purchase trend follows the actual “back to savings” tendency but it is also the result of more targeted and personalized advertising policies. In fact, during the Double 11, a big amount of big data were processed in order to offer a customized experience.
“Two years ago I bought a lot of clothes, this year I opted for household products and a new set of saucepans,” said Gu Li from Nanjing. “Wages have not changed much, certainly we have much more benefits than before, but I prefer to save on some unnecessary purchases and decline some dinner with friends, in order to buy products of quality that I need,” she adds.
As some customers revealed, this year offers were smaller but more personalized as brands used big data to hone their targets. Users took advantage of many shopping deals to buy clothes, cosmetics and kitchen utensils in pre-event sales while kept shopping on the day.
The consumption slowdown could be also driven by the financial turmoil that hit the Chinese stock market last summer. But the volatility in mainland Chinese stocks indicates how the local financial environment is still developing.
In China, almost 80% of the stock market is not supported by big players, but rather by small enterprises, which often struggle to move among complex financial dynamics. Last intervention of the state on finance issues in June, thus provoked large losses for smaller shareholders, money families now recover by saving.
©123rf. Chinese stock-market. While retail-investor-dominated mainland Chinese markets cannot be taken as a direct gauge on economic conditions
This year, driven by inflation and rising commodity prices caused by US duties, the consumer price index in the PRC rose 2.1% compared to 2017 levels. In order to encourage citizens to spend more, Beijing has recently announced the first income tax cuts in seven years, reducing the income bill by about 320 billion yuan in 2018.
Domestic consumption is crucial to China’s GDP as it accounts for 63.4%, almost two-thirds of the country GDP.
This new frugality rose up while Dragon’s leaders are trying to protect the economy from the commercial war of the United States and to support the stock market. Yet despite such efforts, signs that the consumption downgrade is beginning to show up in Chinese economic data put the health of the country’s model at the center of global concerns.
©Zhangkai. Millennials and Generation Z, born in the 1980s and ’90s, who make up nearly half nation’s buyers of high-end goods, also turn to less famous brands.
The Middle Kingdom bets on the internal market and the service industry, which is significant for the national market. On the other hand, many consumers reveal that their consumption downgrade comes from the soaring living cost. But while some Chinese intend to spend less despite their improved financial status, not everyone is cutting back.
In rural China, despite the lower purchasing power, the per capita consumption expenditure increased by 12% this year, compared to 6.5% in big cities.
The belt-tightening narrative is thus a trend that divides the PRC into different purchasing behaviors. On the one hand, big and wealthy cities’ population prefer to aim the expenses towards specific useful purchases. On the other hand, rural regions experience a newborn enthusiasm towards e-commerce benefits.
The challenge is, therefore, to restore a greater consumption by increasing the income of customers. Considering that more than 400 million Chinese people will be included in the middle-class by 2020, the domestic consumption’s potential growth is wide.
©123.rf. Shanghai. As Chinese leadership clears the path for better regulation in the finance field, China prepares for a dominant global role.
This part of the population, in fact, will represent the future class of entrepreneurs who will create internal profit and at the same time hire people offering a higher salary.
Probably, the smart purchasing trend is not going to disappear. However, big data processing together with the adoption of interventions aimed at consolidating welfare and thus stimulating the population’s propensity to consume will create a brand-new market. Prudent middle-class buyers and new rural customers are thus going to create a new larger conscious market.