Chinese consumers will become more emotional and individualistic this decade, as the Asian giant’s economic engine shifts gear from investment to consumption, a new survey showed Wednesday.
“Meet the 2020 Chinese Consumer,” a report by consultancy group McKinsey, says consumption will account for about 43 percent of China’s economic growth by 2020, compared to 33 percent in 2010.
Discretionary spending will grow 13.4 percent during the same period, said the report, which was based on interviews with over 15,000 people.
“The difference henceforth is that consumption, rather than investment, will be the driving force,” it said, citing Beijing’s efforts to boost private consumption, which is seen as essential to sustainable growth.
The report forecasts major shifts in the spending behavior of consumers in the world’s second largest economy, with huge consequences for companies trying to tap the Chinese market.
Higher wages, urbanization and industrialization, greater social mobility, improved education, the one-child policy, increasingly independent women and stark “imbalances” between different regions would be key factors in China’s future spending habits.
Average per household annual disposable income would double from about $4,000 to $8,000 over the decade, as the economy grew 7.9 percent annually compared to 2.8 percent in the United States.
The number of relatively wealthy “mainstream” consumers in households with annual disposable income of $16,000 to $34,000 would soar from six percent of the urban population in 2010 to 51 percent in 2020.
“Although their absolute level of wealth will still be quite low compared with that of consumers in developed countries, this group comprising of... close to 400 million people will become the standard setters for consumption,” the report said.
But this new generation of consumers will be unevenly spread around the country, with large concentrations in a few urban clusters.
In 2020, the gross domestic product of the Chengdu cluster, a region of 29 cities in western China, would equal that of Austria’s in 2010, and the GDP of the Shandong byland cluster in the east would match present day South Korea’s.
While the Chinese would remain canny buyers who compare products before parting with their hard-earned cash, many would be looking to “trade up” to more expensive products of higher quality and status.
They would also become more inclined to let emotions govern their choices.
“As income continues to grow, (spending patterns) will shift to the emotional aspect of whether this is something that ‘makes me feel good’,” McKinsey’s head of consumer goods for Greater China, Max Magni, said.
“We will see a much more sophisticated shopper.”
Citing an example, the report said that when buying a chocolate, only 8.0 percent of Chinese consumers in 2009 thought concepts such as “showing my status” or “this is a brand for people like me” were important.
The figure now stands at 19 percent and 24 percent for wealthier consumers.
Even so, impulse purchases will remain relatively rare, with only 28 percent of Chinese admitting to buying on the spur of the moment compared with 49 percent in the United Kingdom.
And McKinsey said Chinese traditions of thrift and caution would die hard.
“Certainly, consumption will rise strongly in line with rapid income growth, and savings rates may well fall. But the Chinese will remain ‘smart’ shoppers because they are willing to spend time and trouble researching purchases,” the report said.
“And with price comparisons easier to make, they may become smarter still.”