China is the world’s second largest economy, now with the world’s largest consumer market, has become an imperative and distinct leader in the global market. With extensive growth rates driving China forward in previous decades, as high as 14.2% in 2007, it is now beginning to enter a new, more sustainable stage of growth. The International Monetary Fund (IMF) has set its forecast for 2015 at 7% or lower, with the 2014 growth rate expected to be between 7.3 – 7.5%. This is still a phenomenal growth rate but a more controllable one.
The source of growth within China is changing and many are wondering “has the players changed or the game itself”? The most accurate answer shall be : “both”. Nowadays, the service industry has the leading share in percentage of GDP, which makes consumers the major driving force of growth. From consumer spending, the influence of social media, the slow but sure ‘green’ movement, the changing production industries, to the emergence of real Chinese brands, it is important to look at the trends for 2015 to understand the dynamics of the Chinese market.
1. Consumer Spending
With the closing of the income gap between the rich and the poor there are a whole new number of consumers ready to spend with disposable income. Disposable income allows for spending not just on the requirements of living, but anything additional the individual may demand.
Consumer demand is a rising power within the growth of China as they insist upon more choice between sophisticated goods and services. It is important to note that many Chinese are looking for increased image and status and the ability to showcase their purchasing power capabilities.
Consumer groups or niches are developing and communicating through social media and demanding differentiated, high quality and environmentally conscious products to compliment these status requirements and personal opinions. China is seeing the end of low-cost standardisation and quantity for differentiated high quality production. Consumer spending is what is driving the economy forward, and the demands of these consumers are going to shape the future of China.
Purchases that will continue to rise are travel and education, both domestic and international, which directly contributes to the sophistication and status of the consumer. An educated population is essential to prosperity but also requires different needs to that of the less educated, hence the demand for improved products and services.
Other purchases to increase with the rise of the middle-class will be in automotive and medical & beauty products as presentation and style are important to a personal image. As more of the population raises from low level income positions, these factors will only increase and the power consumers have will also rise and drive growth.
- Increased income + closing of income gap + more middle class
- Increased Disposable income
- Demand for quality over quantity
- Looking for Image and Status
- Niche markets as opposed to standardised
- Increased travel and education
- Medical, beauty, cosmetics and personal care etc.
- Automotive + International Property Purchases
2. Online Social Media
Online social media (OSM) is a huge influential force within China. Socialmediatoday.com depicts that there are at least 642 million internet users in China, with 91% of these users maintaining multiple social media accounts and 43% highly considering products and brands shared by friends. These numbers will only increase as more of the population gains internet access, which is happening at a steady rate.
Social media facilitates consumers to showcase and share their status, opinions, experiences and purchasing power capability; by sharing they not only promote themselves but the products they use. This is the most powerful form of marketing known traditionally as word-of-mouth.
Consumers are demanding more content, more of a story, more of an experience, more of a learning process, not just accepting the product as it is but wanting to know how, why and in what way the product will benefit them. By developing this content brands create sharable and engaging information that reflects the image they want to sell and thus increase the chance of success with OSM as a major distributing platform.
The functions of OSM are adapting which can be seen with a 350% increase in online to offline (O2O) purchasing this year alone. Examples include the use of QR codes and the range of apps for dating and taxis services with some only accepting mobile payment such as 20,000 Beijing taxis (LabBrand.com, 2014). This integration of social media, technology and physical purchases is certain to continue and be innovative.
Online Social Media will increasingly be majorly influential in determining purchasing attitudes and facilitating consumer spending demands.
- Demand for content, experience, knowledge and status etc
- Increased utilisation of OSM as increased % of population gains internet access
- Information and data sharing slowly rising. Less concerned than West about privacy.
- Continued increase of influence on purchasing attitudes
The thought among many consumers worldwide is that Chinese brands and businesses lag behind when it comes to green thinking and that this might just be one of the last great competitive advantages ‘Western’ brands enjoy. This advantage is soon to end as Chinese consumers, not just the private sector but the government sector, are conscious for more of a guilt-free image when it comes to their actions with up to 81% of consumers willing to spend more for ‘green’ products (Kan, 2010).
This is an increase in demand for sustainable, ethical, healthy, environmentally friendly products with unique content supporting this image. In addition, due to many previous food scandals such as the Yili baby powder that contained the dangerous Melamine and chemically produced eggs for example, consumers want transparency. This includes factors such as where it was made, how it was made, what are the contents, pollution accountability and how will it affect the consumer and environments wellbeing. Food importation will continue to thrive, as there is now still a great distrust of locally produced foods.
This demand for a green economy is not just due to having a conscious image but a deep passion, with as high as 30% of Chinese consumers viewing the environment as more important than the economy. A percentage much higher than that of the US and Britain.
There are already Chinese brands currently engaging in conscious activities, with a rise in recycling and green manufacturers such as one waste-to-product start-up business model that recycles old jeans into carpet or another that reclaims the nutrients considered waste in used water then sells the nutrients and the cleaned water (Walshe, 2013). The adoption of sustainable processes will be slower than the other trends, but businesses that are already pursuing it are being rewarded and appreciated by many Chinese.
- ‘guilt-free status’ environmental, healthy, sustainable, ethical
- Demand for transparency
- Driven by both government and private sectors
- Food Importation + food scandals
4. Production & Industry Sophistication
Urbanization has seen massive changes to the production industry. These changes have decreased the supply in low-cost labour, which was abundant in previous years, due to the increased sophistication, opportunities, education and salary of workers and of the country as a whole.
China is moving away from low-cost mass production for export and agriculture and into a service economy. This includes research, telecommunications, tourism, retail and luxury goods as the major contributors to GDP.
Requirements such as safety, transparency, income levels and the low supply of menial labour give little incentive for low end production; but an educated population provides an opportunity to become a leader in high-value technological research and production which is more profitable. The world is soon to see China leading R&D in many industries. One prime example is that according to popular expert opinion China is likely to become the world’s centre for robotics, a title previously owned by Japan.
Agricultural production will also decline do to urbanization and other factors such as the previously mentioned food scandals and will result in increased importation.
The Chinese consumers want industries that can provide them with the sophisticated goods and services they demand, but also to supply the superior status they seek as proud Chinese within the world stage.
- Decreased supply of low-cost labour
- Demand for safety
- High value technology – Example: robotics
- Increased salaries
- Increased education
- Urbanization = move towards service industries
5. Emerging Chinese Brands
With Chinese brands such as Alibaba, Xiao Mi and WeChat making their way to the international stage and providing real competition to their western counterparts, it is appropriate to say that we will see more Chinese brands with quality products and processes rise and grow in the world market. Considering what has been mentioned, this is the natural course for Chinese brands as they increase in popularity, increase in sophistication and quality, increase in understanding of market demands and look to make a larger presence.
China is ready to build real brands, not just low-cost products for export. Xiao Mi is aiming to compete with Apple and Samsung, WeChat to Whatsapp and Viber, and Alibaba to eBay & Amazon. These brands have potential to succeed on international arena because they understand the dynamic markets, importance of social media and changing demands of consumers. They are different, with one major thing in common – they are the “end-product” of the changing China.
China and the world are to see more and more such Chinese brands providing innovation, quality and real competition to their western counterparts.
- Linked to consumer spending
- Increasing number of popular Chinese brands
- China ready to built real brands, not cheap products
- Examples: Xiao Mi, WeChat
It is no coincidence that these “China 2015 trends” are linked, as they are all pushing and pulling each other forward. A sophistication of the production industry, the demand for ‘greener’ products, and the unforgiving power of social media are all natural responses to increased consumer purchasing power, education, and a want to improve and share status and image. China now has the largest consumer market, and these consumers are the major drivers of growth and shapers of the economy. The result will be the emergence of real Chinese brands that will be ready to compete with established “western” companies on international arena.
Ashley Galina Dudarenok studied business and economics in Russia, England and New Zealand and Mainland China. After 5 years in China as a PR manager for an international marketing firm, Ashley moved to Hong Kong in 2010 and started Alarice International – a China market-entry consultancy. Contact: Ashley Galina Dudarenok
Kan, J. (2010, 05 02). Environmentally Friendly Consumers Emerge. Retrieved 09 25, 2014, from China Business Review: http://www.chinabusinessreview.com/environmentally-friendly-consumers-emerge/
LabBrand.com. (2014). Digital in China: Top Trends and Best Examples of 2013. Retrieved 09 25, 2014, from LabBrand: Brand Innovations: http://www.labbrand.com/knowledge/best-practices/digital-china-top-trends-and-best-examples-2013
Walshe, S. (2013, 07 16). The scientists and startups converting waste water into clean energy. Retrieved 09 26, 2014, from The Guardian: http://www.theguardian.com/sustainable-business/waste-water-convert-clean-energy