A look ahead to 2023 in the China market
We’re not out of the woods yet. The spread of Covid is taking hold in many cities in China, but November’s green shoots look to be growing leafier. Every day a new policy is added or propaganda broadcast, demonstrating that China has accepted that it will live with Covid like the rest of the world. There will be some pain over the next few months, with modelling indicating that Covid infections will peak in big cities in late January or mid-February before life returns back to ‘pre-Covid normal’ around mid-2023.
Through a marketing lens, ‘pre-Covid normal’ is a misnomer. China has changed since the heady days of 2019. Consumers’ lifestyles and preferences have shifted, as have the messages that resonate with them and the strategies to connect.
Looking ahead to 2023, Chinese affluent consumers are likely to remain resilient. A timely McKinsey study into the 2023 Chinese consumer, has illustrated that challenging recent times in China hasn’t arrested the growth of China’s upper-middle and high income earners, who accounted for 55% of consumption in China last year.
The number of urban households earning more than ¥160,000 ($21,800) a year expanded 18% annually since 2019, rising from 99 million to 138 million in 2021. By 2025, another 71 million households are expected to join this high-income bracket. Nominal disposable income rose by 5.3% across all workers in China in the first nine months, against a backdrop of just 2.0% inflation.
These signals are likely to be contributing to 49% of Chinese consumers being optimistic about their country’s economic recovery following Covid-19, almost double the 26% in the US and Australia, and much more rosy than the 11% in the UK and Japan.
Yet, despite this income growth and optimism, Chinese consumers are clearly rattled by recent lockdowns and Covid-Zero policies. In the survey completed before the end of Covid-Zero was announced, 58% of urban households planned to “put money away for a rainy day,” the highest level since 2014, and up from 49% in 2019. Savings deposits swelled ¥14 trillion ($2 trillion) in the first 9 months of 2022. To quote McKinsey, “they will certainly have a lot of money to spend,” if things return to ‘normal’ by mid-next year.
Over the Covid period, the premiumization trend has continued. For example, sales of premium skincare brands on Tmall grew 52% annually between 2019 and 2021, more than doubling over the period, versus just 16% growth for mass-market brands. Overall, just 14% of high income earners cut their spending this year. Consumers across the board are not trading down, they’re just making smarter choices. Quality and functionality are increasingly critical purchasing drivers, with safe/natural ingredients, efficacy/flavours/design, and branding the key buying factors across food and non-food purchases.
One of the big trends that McKinsey’s highlighted is that local brands are winning overall. Chinese consumers are increasingly choosing domestic brands, and not just because of national pride, but the companies are reacting faster to trends, are closer to the consumer, and are making bolder investments.
The best approach for 2023 in China, is for brands to stay across market changes and trends through research and data such as our Category Trackers and Brand Health Tracker, and stay nimble and prepared to address movements. Brands should establish a consistent presence and voice across the customer journey, and aim to convert consumers to brand ambassadors. Behind the scenes, brands should build a robust supply chain which not only predicts, but also rapidly reacts to uncertainties and shocks to the system.
Hopefully that gives you some things to think about leading into the new year.
You can go in the festive season knowing that the spirit remains alive and well in China, with the Christmas markets in Shanghai absolutely heaving on Saturday … before being abruptly shut down on Sunday. This illustrates that the progress in returning to ‘normal’ will be coupled with initiatives to reduce the spread of Covid for some time yet in China.
This is our last Skinny until the New Year, however our office will remain open for most of the Western holiday period, so let us know if there is anything we can do to assist with your marketing or insights in China. In the meantime, have a wonderful holiday and Christmas if you celebrate it, and a Happy New Year.
