A saleswoman arranges imported snacks at a duty-free store in Qingdao, Shandong province. [Photo/Xinhua]
China's massiveness and complexity mean that the term "Chinese
consumer" is insufficient by default. If you are ever familiar with the
"silo" system categorizing different Chinese cities, people's tastes and
spending power may vary, from tier-one to tier-four, categorically.
But as more multifaceted sets of consumer segments are revealed, one
cannot be more wrong than simply assuming that people in Shanghai -
China's most affluent city by GDP - are naturally generous spenders than
those in, say, inland Central China's Henan province.
The truth is: The consumption locomotive has quietly shifted gear in
the past few months. While big city residents could have more disposable
incomes in absolute terms, it is their peers in lower-tier cities and
townships that are willing to spend a premium for items, from avocados
to sparkling water.
Welcome to China's consumption new norm, a trend featuring the rise
of consumption power among smaller city residents, who are typically in
their 20s to 30s, have received university education, and manage to get
some level of Western exposure thanks to access to new technologies.
They now form the backbone powering Beijing's ambition to bolster
consumption, facilitate the smooth transformation of economic engines,
and maintain a sound pace of expansion.
A string of statistics has confirmed the telling tendencies. During
February's Spring Festival, online shopping exhibited much stronger
vibrancy in third and lower-tier cities across major platforms from
Tmall to JD. Residents from smaller cities outperformed their
cosmopolitan counterparts by the number of orders placed, the variety of
products they chose and customer-per-spending for certain categories.
In the cosmetics segment, for instance, residents of smaller cities
pumped 38 percent year-on-year of online spending on cosmetics last
year, dwarfing just 16 percent recorded by their counterparts in major
cities, according to consultancy Kantar Worldpanel.
People in this demographic aren't hesitant about becoming
trendsetters: They have been fueling sales of avant-garde
special-flavored mouth washes, customized electronic toothbrushes and
liquid eye shadow.
Look further afield: travel agencies like Ctrip and Fliggy have
noticed similar patterns. Outbound trips, a long-time rarity for
township dwellers, have seen explosive growth in recent holiday peaks.
Accompanying such an upward trend is the usage of mobile spending, where
residents of smaller cities lead the pack, according to mobile wallet
Therefore, China's consumer culture has by no means grounded to a
halt, thanks to the group which, according to the National Bureau of
Statistics, is comprised of 220 million people aged between 20 and 35.
There seem to be several factors contributing to their emergence.
A foremost driver is a more relaxed hukou policy, the decadeslong
household registration system determining people's social welfare. More
flexible reforms introduced over the years mean easier access to the
social security system in lower-tier cities, reducing the need for
precautionary savings, and increasing their attractiveness to migrant
And the lower living costs have given rise to higher fertility rates
in these regions. The upshot, according to Morgan Stanley's estimates,
is that smaller cities could account for 76 percent of overall urban
population growth by 2030. That spells huge spending power in the long
Also sparking consumption is the nation's enhanced infrastructure
connectivity across cities, which cuts travel time on major routes by at
least half, and could in turn encourage industrial relocation from big
cities to smaller ones. Meanwhile residents of smaller cities also
benefit from relatively lower housing costs, which can effectively
unleash consumption potential on more discretionary items.
With no signs of abatement, consumption is set to continue upgrading
in terms of scale and quality, and this is good news for both the
country to keep the economy on track and businesses seeking to cash in
on the world's largest consumer market.
I am no expert on giving investment advice, but for global companies,
it would not hurt to watch out for opportunities in providing quality
food and beverages, entertainment offerings, and outbound travel
featuring immersive local experiences