How Chinese Consumers Differ to the West
House prices in China are continuing their seemingly never-ending rise. Prices in 69 of China's 70 main cities are up from last year. In most countries when house prices are on the up, consumers feel wealthier and spend more. Not so in China. Although slowing GDP growth is affecting confidence, climbing house prices aren't helping things either. Just over one in four Chinese consumers plan to spend more this year, 29% less than last year. That in itself marks one of the biggest differences between Chinese and Western consumers.
As house prices rise in the West, many consumers who've only put down less than 20% of their own money, gain 100% of the rise, and businesses hear cash registers ringing. With each piece of news on rising prices, they're out taking full advantage on spending binges. To the prudent Chinese, rising house prices point to increasing costs of living and pricier retirements, higher costs to trade up their dwelling and a more expensive apartment so their son can marry. So they save. Home ownership in China is reportedly as high as 90% (it's 65% in the USA), meaning a good portion of consumers are on the gravy train, nevertheless, household savings hit a historical high of 38% of disposable income in 2012 as prices continued to rise.
Fortunately, the increased savings aren't all doom and gloom for businesses selling in China; it's just a case of continually needing to adapt. Although more consumers are looking to cut spending, many are trading up, buying fewer, but higher quality items. They are looking for value, spending more of their income shopping online and at outlet malls. 42 cars a minute are still selling in China.
For those businesses offering suitable investments, with one-year bank deposits in China paying around 3.25%, Chinese are increasingly looking to divert their savings for better yields - just ask the one million customers who signed up to Alibaba's 'Yu E Bao' in its first week, or anyone who has enjoyed a share the $64.4 billion China invested overseas last year. There are plenty of opportunities both within and outside of China, and hopefully some of the articles below may provide some insights to tap into them. Enjoy!
Chinese Consumers
Chinese Consumers Less Optimistic About The Economy And Fewer Plan To Increase Spending In Coming Year: 27% of Chinese consumers plan to spend more this year, down from 38% last year, and almost half in 2011. Although, it's still three times higher than consumers in the US, Europe and Japan. Just 22% of Chinese feel their savings meet their expectations. Those in small cities, especially 18-34 year olds, remain the best driver for population and consumption growth. Long term optimism is high, with just 11% believing the economy will not improve over the next few years.
Women: The CFO of the Chinese Household: Since 1980 in China, women's average contribution to household income has grown from 20% to 50%. They're seeking at least an equal footing on purchasing decisions for big ticket items including insurance, electronics, finance and cars. An integrated marketing approach is the best way to reach women. TV is important, but online is critical. Just 10% of social media ads target women, although 27% of women follow their favourite celebs on social media every day, and 54% trust what they read on social media.
Study Will Value Chinese Celebrities: A 2011 survey found excessive use of celebrity advertising and poor matches between celebs and products had caused likability of such ads to drop by 4% and brand linkage to slide 6%. Just 35% of celebrity TV ads achieve satisfactory results. The new FUSE Celebrity Index aims to help assess the value of 700 Chinese celebrities in entertainment, sport and the arts.
Property
China Home-Price Gains Add To Dilemma On Cash Crunch: Economy: House prices in China grew in 69 out of 70 tracked cities from a year ago, despite efforts to cool the market. Wenzhou was the only cities to see prices fall at -3.6%. Guangzhou topped the charts with 15% growth, Beijing at 12% and Shanghai, 10%. Chinese home prices had the biggest gains globally of 55 countries for Q1 of this year.
Outlet Malls Draw Chinese Shoppers: Chinese consumers are becoming more sophisticated with bargain hunting, shifting towards outlet stores. Value Retail's nine outlet stores in Europe have seen Chinese shoppers increase 49% in Q1 2013, spending $455 each, 12% more than the average shopper. AWE Talisman's North American outlet stores have seen 140K Chinese tourists through in the first half of 2013, compared to 106K for all of 2012, and are estimated to spend 50% than other international visitors. They've started building Chinese buffets.
Chinese Investors Now Have Easier Way To Tap U.S. Property Market: Chinese investors can get a piece of US real estate for as little as ¥1,000 ($163) by investing in US real estate investment funds. "I hope those fund managers bold the word 'Detroit' in the fine print" - Ernie Diaz.
Business & Investment
Passing Down The Business: 85.4% of the China's private sector companies are classified as family businesses. In the next 5-10 years, 75% of them are set to enter a period of management transition with the kids.
Alipay's Investment Service Attracts 1 Million Users In A Week: Alibaba is at it again, this time with its 'Yu E Bao', where customers can buy money market funds or other financial products using idle money in their Alipay accounts. With better returns than bank deposits, there's little wonder 1 million users signed up in its first week. Although shortly after launching, authorities announced the service didn't comply with regulations and may face penalties.
Western Groups Wary Of Chinese Buyers: China's outbound investment hit $64.4b last year, the second highest total in over a decade. However sellers aren't so keen on selling to Chinese, charging them a premium of up to 20%.
Internet, Mobile & Social Media
A Look At China Cache’s China Internet Report For Q1 2013: If you're hoping to attract inland Chinese consumers to your website, hold back on slow-loading bells and whistles - average connection speeds get worse away from the coast.
Kaifu Lee On What Tech Companies Should Do To Make Things Work In China: Internet Guru Kaifu Lee's take on foreign firms hoping to enter the Chinese online space. Any company hoping to succeed in China needs to take more care and be prepared to compromise, rather than just treating it as another international market. The biggest differences are (1) the user structure; (2) industry landscape; and (3) fast-growing startups.
Price War Between E-Commerce Firms Hotter: June was a good month to be shopping online in China. Competition between China's eCommerce platforms heated up, with JD.com offering discounts on millions of products to celebrate its 10th birthday. Tmall gave an estimated ¥200 million ($32.6m) in discounts and Tencent's 51Buy and Sunning followed suit.
Lenovo Playing Games in China to Challenge Samsung Phones: Mobile game users are expected to grow by 30% to 280 million users this year, with sales up 55% to ¥9.6 billion ($1.56b). Lenovo is adding a gaming service which includes social media features, reviews and tips, in hope of becoming number 1 in China's smartphone market.
Food and Beverage
GM Influx A Dilemma For Consumers, Farmers: China has another food dilemma on its hands with GM. Large scale production of GM crops are still not approved in China, however imports of GM food is making it hard for local farmers to compete.
Chinese Wine Consumers Prefer Traditional Packaging: Chinese wine distributors consider the country of origin as the most important criteria for choosing wine, followed by price, taste and region/vineyard. The shape of a wine bottle is the 5th most important, more-so than the label and colour of wine according to a study by UbiFrance.
How To Satisfy China’s Insatiable Demand For Cookies: The Chinese market for cookies is worth $24 billion, and is growing at 20% a year. However the most successful Western brands in China have modified their flavours to local tastes; take Oreo and Hershey's, who've just launched their non-chocolate milk candy, their first new product developed just for a foreign market.
Thanks To A New Trade Deal, China Could Up Its Tequila Intake By 2400% In Five Years: Da-da-da-da-da-da-da-da Da-da-da-da-da-da-da Lóng Shé Lán! A new trade agreement with Mexico allows its 100% agave tequilas to be imported into China. Some are picking China's tequila consumption could grow 2400% in five years. 65% of China's alcohol consumption is hard liquor, with Baijiu accounting for 95% of that.
Fashion
Apparel Dominates E-commerce Sales In China: China leads globally in the A.T. Kearney Retail Apparel Index for its compelling opportunities due to its market size and growth. Three trends shaping the apparel market - the rise in eCommerce, a boom in fast fashion and the evolution of the luxury market.
Auto
Honda’s ‘China Dream’: Honda is hoping to turn around declining sales in China by launching 12 new models by 2015, better technology and localised production & features. They're also hoping to win some of Germany's 80% share of the luxury car market with Acura by focusing on advanced power trains, fuel efficiency and lower-priced premium models.
Chinese Consumers Don't Want Electric Vehicles Just Yet: Although Chinese consumers see the effects of carbon monoxide every day, they haven't taken to Electric Vehicles yet. 80% of China's 39,800 electric cars on the road are used for public transport.
GM Says China Luxury Vehicle Demand Slower Than Expected: GM picks sales of premium cars in China to rise just 4% this year, with the total auto industry predicted to be up 7-8%.
Counting Cars: Rising Private Automobile Ownership in Chinese Cities: 93m, or 80% of cars in China are privately owned. Beijing with it's four million+ cars, now has more cars than car-crazy Houston. Three Chinese cities now have more private cars than New York City's 1.8m. That's a lot of cars, and no doubt a boon for anyone the auto industry from car sales, to servicing, to parking, to road construction, to fuzzy dice and those wobbling toy dogs in the rear window. Car purchases are motivated by a mix of practical concerns and to reflect social status.
Can China Spend Itself Richer: 2,500 vehicles are sold in China every hour - that's 42 a minute. In the time it took to read this, another few hundred more sold.
That's The Skinny for the week! China Skinny would love to help with your marketing, online initiatives or research to take advantage of China's opportunities. Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
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