Consumption Trends in China

by Yin Xing Liu Haile and Zhao Yue

Investment， consumption， and export are considered the “three engines” driving Chinas economy. Consumptions contribution rate to the countrys economic growth was estimated to surpass 55 percent in 2012. New consumption trends are constantly emerging， colliding， converging， and disappearing at lightning speed， which， to some extent， reflects Chinas social reforms， as well as changes in consumer psychology and consumption habits.

Sam Flemming， founder and president of CIC， notes， “The emergence of social media is quickly transforming methods of understanding consumer attitudes and conducting market research. Social media， with its liveliness， frankness and outspokenness， offers an additional avenue to true understanding of consumer opinions and the pulse of the market.” Social media has been affecting consumption habits and even guiding consumption trends.

Playing It Safe

On Saturday morning， Wang Dazhong loaded his family in the car and drove to Donkey Farm in Beijings suburban Tongzhou District， where he rents 30 square meters of land and works as an ‘urban farmer. “We use only organic fertilizer so its safe for us to eat，” Wang explains. He paid 2，600 yuan for rights to the land for a year and another 100 yuan a week on the commute. A company involved in both distributing organic vegetables and renting land to the public， Donkey Farm is popular with Beijing residents， with demand far exceeding supply， despite relatively expensive prices. For example， 4 kilograms of organic vegetables a week to serve two people for 25 weeks cost 2，000 yuan even if the customers harvest the vegetable themselves. If the produce is delivered to the clients home， the price is 2，500 yuan.

Given frequent food safety concerns， todays Chinese consumers take more factors into consideration when making purchases. “If a Chinese person was flattened， his body would resemble the periodic table of chemical elements，” joked one Chinese netizen about food full of chemicals. Guarantees for safety have become an indispensable desire for modern Chinese consumers， which has helped the insurance industry boom. Compared to 2008， property and auto insurances policies rose by seven percent and four percent respectively by 2012. Amid recent heavy smog engulfing many parts of China， face masks and air purifiers have provided another outlet for expendable Chinese income.

At the same time， the development of social media has raised public awareness about safety by exposing security risks. Also， social media has become a platform for consumers to share safety concerns.

“Throw it out the window” was launched in June 2011 by Wu Heng， a graduate student at Fudan University who recruited 34 volunteers to help notify the public about unsafe food. The website started gaining popularity in May 2012， and now provides users with records of 3，000 discovered poisoned foods nationwide since 2004， with constantly updated data.

Easy E-Commerce

On January 15， 2013， Alipay， Chinas leading third-party online payment platform， released personalized annual account statements， creating a sensation on the internet.

The statements， which documented each consumers spending and online payment patterns for the year， quickly became a hot topic on Weibo， the Chinese version of Twitter. Many netizens shared details of their online spending， as well as their feelings after realizing the full extent of their consumption. Actually， a closer look at many netizens statements shows that usually， a relatively small proportion of income goes to online shopping. Payments of bills such as water， electricity， gas， phone， and credit cards usually take up more. Today， people have begun using online and mobile payments more frequently. Alipays 2012 annual account statement showed that mobile payments are increasingly becoming the norm in China. Mobile payments in 2012 increased by 546 percent compared to 2011. Around 4.3 million people pay more often with their phones than with computers. Such savvy spenders are most often found in Shanghai， Chengdu， and Beijing.

Today， Alipay is available in more than 200 cities and regions on the Chinese mainland. Every day， 18 million people use Alipay to make payments and 60 million people use the platform for account transfers. Alipay users making payments from fourth-tier cities have increased drastically， rising 64 percent， and the sum of their payments processed through Alipay in creased by 68 percent. Alipay is no longer a privilege reserved for residents of modern metropolises， but a lifestyle choice available to all. In 2012， Beijing-based thirdparty payment provider Lakala introduced a payment app for smartphones， transforming them into mobile banks.

On January 29， China e-Business Research Center， a third-party e-commerce research institute， released 2012 China Online Retail Market Data-monitoring Report. The report shows that in 2012， the number of Chinas online shoppers has reached 247 million， an increase of 21.7 percent compared to 2011. It estimates that by the end of 2013， Chinas online shoppers will reach 310 million. By December 2012， trading volume of Chinas online retail market reached 1.32 trillion yuan， a yearon-year growth of 64.7 percent. Experts expect the volume to soar to 1.82 trillion yuan in 2013.

Online shops， group-buying websites and other internet-based businesses enhance modern life， attracting a large number of todays consumers. Throughout history， whenever a new technology became ubiquitous， lifestyles changed dramatically. Although paper currency and coins arent quite obsolete yet， a world without them isnt too hard to imagine.

Consuming Culture

Over 17 billion yuan was earned at Chinas box office in 2012.

Last years average attendance at the National Center for the Performing Arts was 81 percent of capacity.

The Chinese version of the musical Cats was performed 100 times in the country within three months after its premier. Chinas Cultural Consumption Prospect Report 2011 showed that both total volume and per capita of cultural consumption in most of China rose by more than 10 percent. In some bigger cities， the increase reached as high as 21 percent.

Watching movies makes up a particularly large portion of Chinese cultural consumption. Also， thanks to more affordable prices， high-brow cultural performances such as musicals and ballets have become more popular with the Chinese public. In December 2011， Shanghai Grand Theater began selling discounted tickets to offer everyday people more access to art. The cheap tickets have become fixed in the theaters schedule on every third Sunday of the month. The special offer has encouraged more and more spectators not only to attend， but also to spend more money on cultural events.

“Chinas cultural consumption is increasingly focused on tourism， entertainment and conspicuous consumption，”explains Wei Pengju， executive director of Cultural Economics Research Institute of the Central University of Finance and Economics. “High-brow cultural consumption such as reading， museums and creative endeavors are far less popular. The problem can only be solved after both Chinese cultural literacy and consumption power improve considerably.”

During 2012 Chinese New Year holiday， a KFC deliveryman unexpectedly grabbed the spotlight. When ordering food， one netizen jokingly asked them to send a cute deliveryman， but was surprised to find her request fulfilled. Following the girls lead， many people made the same request. Many pictures of the deliveryman popped up on the internet along with stories. The topic went viral. In the fiercely competitive service sector， aside from product quality， added-value such as emotional resonance and nostalgia draw more attention from consumers. As 2012 wound down in China， the most sought-after item was not a ticket to Noahs Ark for the end of the world， but tickets for Titanic 3D. The internet topic“Who accompanied you to Titanic ten years ago？” motivated many to see the film again. As a result， Titanic 3D earned 960 million yuan in China.

Popular domestic brands of the 1980s including Warrior shoes and Youyi facial cream have found new life with those who matured mirroring Chinas economic growth. After inhaling so much foreign fast food and breathing rock and roll， people have begun to seek cultural identity elsewhere.

Gilded Youth

In the modern world of international economic integration， todays young Chinese people have broader vision and more advanced consumption tendencies compared to their parents.

According to a survey conducted by British research firm Mintel in 2012， most middle and upper-class Chinese families give children their own bedroom and purchase various recreational products and electronics to assist learning， such as computers and tablets. In Chinas middle-class families， 47 percent of kids have tablets， while 44 percent have notebook computers.

Increasing numbers of brands， including luxury manufacturers， have begun pay- ing attention to young Chinese consumers. Nikes celebrity endorsement strategy continues to grip the Chinese mainland. A pair of Nike sneakers is a common New Year wish for many youngsters， even though the shoes can cost a third of an urban whitecollar workers monthly income. On April 2， 2010， Baby Dior arrived in China. This childrens clothing store， located in Shanghais landmark Hang Lung Plaza， became the first luxury store on the Chinese mainland to target children.

With constantly improving living standards， Chinese parents have been increasingly investing in their childrens education. Parents spend heavily on education， hoping to lay a solid foundation for their childrens future. According to China Central Televisions 2011-2012 Economic Life Survey， in China， the proportion of family expenditures going to education has consistently increased annually. In 2009， the figure was 41.37 percent. In 2010， the figure was 41.75. And in 2011， the figure jumped to 46.04 percent.

Merchandising based on popular cartoons is nothing new in Japan， Europe， and the United States， but licensed merchandise has only recently become popular in China， especially products from domestic animation. Since it premiered in 2005， the Chinese cartoon Pleasant Goat and Big Big Wolf has created a sensation with domestic viewers. For several consecutive years， a series of New Year films based on the cartoon characters has visited the big screen. In 2012 alone， the box office for the film hit 180 million yuan， not including various toys and other products inspired by the cartoon.

Understanding the modern urban Chinese lifestyle and family structure， with kids at the core， is crucial for those designing， marketing， and selling products to Chinese youngsters. Brands that ignore the young demographic stand to lose a huge business opportunity.

Trendy Charity

In modern China， amidst rapid economic growth， greater numbers of consumers are paying attention to social responsibilities and are willing to donate money to charitable and environmental protection causes. Also， many philanthropic choices are now available.

Weibo （Chinas version of Twitter） charity was one of the most popular philanthropic trends in China last year， with many organizations rushing to the platform as part of their benevolent endeavors. Phrases like “a retweet is a donation” and“your purchase is donation” have become commonplace on the internet. Many new charitable campaigns such as Free Lunch Plan and Love Wardrobe were launched in 2011， as well as Huggies Happy Kids in 2012， attracting public support through Weibo. In February 2012， Sina.com launched a new product： the micro-auction. From July 30 to August 24， 2012， the micro-auction drew participation from a hundred celebrities including movie stars Hsu Chi and Yao Chen as well as sports star Lin Dan. Together， they donated 83 items to be auctioned， which earned over a million yuan （US$161，903） for social welfare.

Public focus on environmental protection and climate change has also boosted the popularity of related charitable organizations. Earth Hour is a global event organized by the World Wildlife Fund （WWF） and held on the last Saturday of March every year. Households and businesses are encouraged to turn off their lights for one hour to raise awareness of climate change. The event usually takes place from 8：30 to 9：30 p.m.， depending on participants local time. The campaign arrived on the Chinese mainland in 2009， and many joined， hoping to contribute to carbon reduction. More Chinese cities joined the event each year， and 124 participated in 2012. Many brands also joined the activity. With focus shifting from individual life to all of society and participation ranging from individuals to multinational corporations， the development marks big progress for Chinas charitable causes.

A Singular Demographic

Recent statistics from a major Chinese dating website and related research institutions estimate a current count of about 180 million singles on the Chinese mainland. Metropolises such as Beijing， Shanghai， and Guangzhou are each home to several million singles. Nowadays， the increasingly massive demographic has made the single adult lifestyle routine and normal. The groups consumption tendencies and potential shouldnt be ignored. Since single people generally dont shoulder heavy financial burdens， they are usually more eager to spend their share of disposable income than parents.

Singles definitely spend big to celebrate. On 2012 Singles Day （November 11）， which is one of Chinas biggest shopping days， gross sales of Tmall， the largest retail online shopping platform in Asia， reached 19.1 billion yuan， almost equal to the total volume of 19 days of retail sales in the shopping mecca of Hong Kong.

Kenichi Ohmae， an internationally renowned Japanese economist， observed that those who live alone prefer expensive boutique markets， convenience stores， and avant-garde concept shops to traditional supermarkets. Singles tend to spend more on high-end fresh and prepared food in smaller portions. For this reason， convenience stores have gained popularity in China， and smaller-portioned commodities have gained demand， such as facial tissue in smaller packages， 30-gram protein powder， 50ml liquid soap， 100ml body lo-tion and shampoo， single-serving takeaway food， and washed and sliced fruit packed for one person.

Home appliances also reflect an important piece of the “singles economy.” Mini home appliances， such as mini washing machines with capacity of only 2 kilograms， portable mini refrigerators， toasters capable of cooking a piece of bread and several slices of bacon at the same time， and mini dishwashers capable of handling only a few bowls or plates at a time， are popular with singles. Although these articles are not exactly price-friendly， they are cute and full of character.

“It is a truth universally acknowledged， that a single man in possession of a good fortune， must be in want of a wife，”wrote Jane Austen in Pride and Prejudice some 200 years ago. The subtext is hidden in the converse： A lady lacking a fortune needs a husband. However， in the modern era， both wealthy single gentlemen， and less-than-well-to-do ladies， or vice versa， can all live comfortably in the “singles economy.”

Omnipresent Third Party

In recent years， third-party services have gained enormous popularity across China. As bridges between consumers and suppliers， many types of third-party agencies have helped clients complete tricky transactions， and do so by injecting the consumption process with tremendous convenience.

With the development of the internet and portable devices， online third-party purchasing has become a popular method of consumption. Statistics from the China e-Business Research Center show that Chinese consumers purchased 26.5 bil- lion yuan of goods from overseas through third-party agencies in 2011， and the figure reached 48.3 billion yuan in 2012， increasing by 82.2 percent over the previous year. The top three most desired imports to Chinese consumers who utilize third-party services are cosmetics， milk powder， and bags， followed by clothes， accessories， and electronics.

Over the past couple of years， microblog mentions of third-party purchases witnessed sharp growth， evidencing the tremendous potential of the third-party purchase market and consumers considerable enthusiasm for the trend.

From carpooling to sharing dinner， travel， and even weddings， more and more Chinese urbanites have now grown accustomed to “sharing” consumption – a money-saving and low-carbon lifestyle widely accepted especially amongst youngsters. In these circumstances， increasing numbers of third-party websites have emerged to offer services for sharing， especially those providing carpooling information services.

Previously， internet users typically published or searched for carpool information on BBS websites or through QQ （a popular Chinese instant messenger）. But now， carpooling websites have become the primary sources of such information.

As 2013 Spring Festival drew near， Mr. Zhang， a native of Heze City， Shandong Province， who works in Shanghai， didnt rush to buy a train ticket home like many others. He booked a seat through the carpooling website Pinker365.com.“Expressways will become toll-free during the upcoming Spring Festival holiday，” he grins， “and I only have to pay part of fuel costs， which is even cheaper than a train ticket.”

Third-party services are available throughout the entire transaction process– from price inquiries， purchasing， and payment to delivery. It seems that thirdparty agencies are playing an increasingly omnipresent role in peoples lives.

Silver-Haired Spending

The latest survey conducted by China Internet Network Information Center（CNNIC） showed that people over age 50 account for nearly 10 percent of Chinas estimated 500 million internet users. Statistics from Taobao.com， Chinas leading e-commerce website， show that shoppers over age 50 shot to 1.75 million in 2012.

According to one of the websites executives， todays seniors are savvy about online shopping， and some even spend a lot purchasing electronics and furniture on the internet. “Many seniors are showing substantial economic strength with their impressive consumption capacity，” he remarks. “Although the 1.75 million seniors account for only a small percentage of the countrys total online shoppers， their average spending is higher than youngsters.”

Ms. Zhao， a retiree in Guangzhou， capital of southern Chinas Guangdong Province， fell in love with online shopping a year ago. Now， she not only purchases goods for herself on the internet， but also buys clothes for her grandson. “My daughter often purchases goods on the internet， and I learned about it from her，”she reveals. “Things are often cheaper on the internet， and some online stores even specialize in commodities for seniors.”

Over the passage of time， the traditional trend advocating consuming a single product as long as possible has become outdated. Many seniors have woven plans for their golden years with passion， and they want to spend more money while enjoying a high-quality retirement. A recent survey shows that increasing numbers of middle-aged and elderly Chinese people are eager to travel. From 2010 to 2012， the percentage of seniors who traveled within their native provinces increased by 7 percent， and those who traveled to other provinces rose by 18 percent. In addition， mobile phone ownership and recreation rates amongst Chinese elders have also increased with each passing year.

As China quickens its paces towards an aging society， increasing numbers of seniors are shaking off the chains of age and embracing easygoing lifestyles. With the improvement of the countrys pension system， the per capita income of Chinese people aged 55 to 64 has seen a steady increase. After seeing growing numbers of seniors with more disposable incomes， few doubt that the “silver-haired economy” will create an enormous market in China.