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Fresh spenders in China

(China Daily/Xinhua)
Updated: 2008-11-17 10:56

Significant spending

China's emerging middle class buyers were set to generate significant spending growth in the coming years, as more and more people in not only first-tier cities like Shanghai and Beijing, but also the satellite towns and second-tier cities want to buy "affordable luxuries," marketing advisers said in Beijing recently at a business forum.

Speaking at the forum, Janet de Silva, chief executive officer of a Hong Kong-based marketing and branding firm, said China's emerging middle class has been "a reality," especially over the past five years, and the retail markets were already established and competitive in first-tier cities like Beijing and Shanghai.

On top of that, one of the key trends in 2008 is that more and more people in second-tier cities and satellite cities around first-tier cities were joining the league of emerging middle class who want to buy "affordable luxuries," she added.

"I believe that the middle-class consuming market will do a lot to help stabilize what will be some offsets in China because of the slowdown in certain parts of manufacturing," de Silva says, referring to the export sectors.

She says consumer spending, though growing quickly, was contributing only about 20 percent to China's GDP growth at present, compared to 35 percent contributed by export.

But surveys have shown that China's emerging middle class, many of whom are skilled technicians and white-collar employees working with multinational firms, "strongly associate international brands with tastes and success."

The middle class buyers were obviously expanding beyond the first-tier cities into the suburbs and the second-tier cities, with some 10 satellite towns, each with a population of about 1 million, planned for Shanghai, for instance, she says.

Some of the multinationals, which employed many of the technicians and white-collar workers, were now manufacturing products for consumption in China, she adds.

New trend

Viveca Chan, whose marketing firm operates in Beijing, Shanghai and Hong Kong, says Chinese consumers were turning from shopping for "outward recognition to inner substance."

But de Silva was also quick to warn that international retailers often run the risk of unrealistic expectations for the Chinese consumer market, which is developing rapidly but not everyone is there with right consumption pattern right now.

"In China, 1.3 billion people does not mean 1.3 billion shoppers," she says.

She cited a case to show that Hong Kong, a city with a population of about 7 million who were each willing to pay $350 on average for a women and babies' product, makes a larger market than the city of Chongqing, a city of over 20 million people at present.

Chongqing, in Southwest China, would become "commercially viable" for the product involved by 2015, whereas Shanghai was expected to overtake Hong Kong in the coming years.

De Silva says retailers trying to tap into the emerging Chinese middle class consuming market should do researches, find a strong partner and be patient.

As China's economy has soared at consistently astonishing rates, many global companies have focused on serving the country's most affluent urban customers. When these well-off urbanites were the only consumers with significant disposable income, this strategy of skimming the cream from the top made sense.

But new research by the McKinsey Global Institute (MGI) highlights the emergence of a far larger, more complex segment - the urban middle class, whose spending power will soon redefine the Chinese market. While some companies are already focusing on the evolution of this new class, many others have yet to broaden their vision and thus risk missing a significant opportunity.

The lure of China's urban-affluent segment is easy to understand. These consumers earn more than 100,000 yuan a year and command 500 billion yuan - nearly 10 percent of urban disposable income - despite accounting for just 1 percent of the total population. They consume globally branded luxury goods voraciously, allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them, according to McKinsey Quarterly, the business journal of McKinsey & Company.

 

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