The Australia-China Chamber of Commerce and Industry of New South Wales

Newsletter No. 19

12 May 2000

 

 

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CONTENTS

Who is Acquiring the Greatest Amount of Spending Power?

What Are the Big Spenders Purchasing?

Preferences of the Under-20s

Preferences of the 40-to-60 Age Group

Preferences of the Over-60s

Supermarket Versus the Internet

Implications

Sources of Information

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ACCCI ELECTRONIC NEWSLETTER NO. 19

The focus for this issue is the New Consumerism in China. The potentially lucrative domestic market in China was a major factor in the accumulated foreign direct investment of US$300 billion over the past two decades. Approximately 90 per cent of this investment occurred after 1993, which represents the beginning of a rapid rise in retail sales of consumer goods in China.

The highest rate of growth for retail sales occurred in 1994 (30.5 per cent in nominal terms). Since then, the rate of growth declined to 11.2 per cent in 1997 and to less than 10 per cent in 1999 (also in nominal terms). Recent trends point to a modest recovery in the growth of consumer spending this year. We pose the question: Is this recovery likely to be associated with different spending patterns?

 

 

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WHO IS ACQUIRING THE GREATEST AMOUNT OF SPENDING POWER?

A recent survey by China's Bureau of Statistics, with assistance from seven other government departments, indicated that young urban residents in the coastal provinces with university degrees are becoming the top income earners. More specifically:

·         Among the 170,000 residents surveyed on a nation-wide basis, people with university degrees (comprising 12 percent of the sample) had the highest average income of 980 yuan. Illiterate persons were at the bottom with an average income of only 481 yuan.

·         Chinese aged 41 to 45 earn 30 per cent less, on the average, than those under 30 do. The lower income of the middle-aged group arises mainly from the disruption of the educational system during the Cultural Revolution from 1966 to 1976.

·         In August 1999, the per capita income of 6 per cent of urban families was less than 100 yuan per month. This group was concentrated in Heilongjiang, Shanxi, Qinghai, Inner Mongolia and Xinjiang Uygur autonomous regions, where they accounted from more than 10 per cent of the people surveyed in the regional cities. In contrast, in the coastal cities, such as Beijing and Tianjin, impoverished urban families comprised less than one per cent.

"China's Employment, Distribution Structures Change", People's Daily, 5 May 2000.

 

 

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WHAT ARE THE "BIG SPENDERS" PURCHASING?

China's one-child policy was introduced in 1979 in an attempt to limit population growth. This resulted in a distinct bulge in consumers who were born shortly before the controls took effect. These people had the advantage of a better education and are therefore among the currently high-income earners.

The families formed by these people have only one child, thus releasing a greater amount of income for household consumer goods. This contrasts with expenditure patterns of their parents who spent heavily on the needs of more than one child.

As assessed by advertising outlays, in 1999 a large share was used to promote higher-quality-of-life products. The ranking of the "top ten" products advertised on China's 320 television stations is as follows:

Pharmaceuticals - RMB 8.75 billion

Cosmetics - RMB 6.13 billion

Beverages - RMB 4.58 billion

Electronic appliances - RMB 3.91 billion

Food - RMB 3.69 billion

Alcohol - RMB 2.76 billion

Services - RMB 2.56 billion

Post and Telecom - RMB 1.8 billion

Cleaning Products -RMB 1.65 billion

Household Products - RMB 1.54 billion

A slightly different pattern emerged from newspaper and magazine advertising, but nevertheless reflects generally the trend toward quality-of-life items:

Real Estate - 2.49 billion

Computers - RMB 1.79 billion

Services - RMB 1.23 billion

Electronic Appliances - RMB 1.15 billion

Pharmaceutical - RMB 1.15 billion

Post and Telecom - RMB 1.12 billion

Motor Vehicles - RMB 670 million

Entertainment - RMB 530 million

Cosmetics - RMB 430 million

Industrial Equipment - RMB 380 million

China's three largest cities accounted for 16 per cent of the national total for advertising outlays.

"Advertising Spending Growing Quickly in China", ChinaOnline, 21 April 2000.

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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PREFERENCES OF THE UNDER-20s

It has generally been recognised that the younger Chinese are more aware of global trends than their parents were at the same age. These trends are nevertheless superimposed on traditional tastes and values, thus giving them "Chinese characteristics".

Asiaweek reporter, Alexandra Seno, suggests that for "music, fashion and more, the trend capital of China is the capital of Japan".

This includes the Chinese girl group Fantasy, who were little more than three ambitious lasses from Shanghai until they were despatched for six months to a Tokyo "pop factory". Repackaged, they returned to China as a hip, in-your-face dance band -- with platform shoes, spiky hair, midriff-bearing outfits and a fan club. "

And it's not just for trends in music that young Chinese look to Japan. The latest craze in street fashion is found in Japanese magazines -- which, in turn, are a reflection of all the weird and eye-popping things going on each day in the faddish Harajuku district of Tokyo. "Japan is the world capital of kawaii [cuteness]," explains Guy Murphy of the Bartle Bogle Hegarty ad agency in Singapore. "It reinterprets products from the U.S. for an Asian palette."

The critical element would appear to be the "reinterpretation". This could presumably be done anywhere in East Asia, but it is not likely to be done successfully outside East Asia.

Chinese born after 1980 grew up with the economic reforms and have thus witnessed the rapidly changing market system. They are likely to more aware of foreign brand names and thus exert an influence on the family purchases that are affected by "brand recognition". The results of a survey 16,677 people in 30 Chinese cities (from the 1999 AC Nielsen China Millennium Report) indicated that the following international products were often used:

KFC (fast food) -- 45%
Safeguard (body soap) -- 36%
Lux (body soap) -- 35%
Coca-Cola (soft drink) -- 33%
McDonald's (fast food) -- 33%
Rejoice (shampoo) -- 29%
Colgate (toothpaste) -- 28%
Kodak (film) -- 27%
Contac (cold medicine) -- 23%
Nestlé (instant coffee) -- 23%

In comparison, domestic products that enjoyed consumer popularity were more likely to be influenced by parental choices:

White Cat (dish detergent) -- 51%
Arawana (cooking oil) -- 48%
Kang Shi Fu (instant noodles) -- 37%
San Xiao (toothbrush) -- 32%
Gold Lo (batteries) -- 18%
Robust (bottled water) -- 12%
Zhong Hua (toothpaste) -- 12%
Fulinment (cooking oil) -- 11%
Haier (refrigerator) -- 11%
Tang Tang (instant noodles) -- 11%

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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PREFERENCES OF THE 40-TO-60 AGE GROUP

Many foreign enterprises were drawn to China by the thought of selling a particular product to 1.25 billion Chinese, but two important discoveries were made. First, whatever the product, China had attracted a large number of sellers. Second, many Chinese remain relatively frugal and continue to purchase only the minimum quantities of consumer goods.

The second of these is particularly true for the 40-to-60 age group. The clothing they wear is intended to meet climate and weather conditions, not international fashions. As quoted in Asiaweek, a retail consultant stated that many Chinese buy Gucci shirts, but there are a lot more who only own one shirt.

This age group is nevertheless interested in travel, both inside and outside China. During the recent 5-day May Day holiday, there was a 15 per cent increase in travel compared to last October's National Holiday. More than 100,000 Chinese residents travelled abroad, a 30 per cent increase over last year.

Within urban areas, this age group will continue to purchase television sets, refrigerators and washing machines. It is unlikely, however, that they will acquire motor vehicles. They may be receptive to Internet shopping (see below).

"China's May Day Spending Hits US$2.19 Billion", ChinaOnline, 11 May 2000.

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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PREFERENCES OF THE OVER 60s

China has an estimated 130 million people over the age of 60 -- and about 5,000 of them log on each week to 51666.com, an Internet portal that caters to the not so sprightly. Co-founder Warran Cai, a former finance-industry professional, says he thought up the idea (the portal's numbers sound like "I want to have a happy old age" in Mandarin) while observing his parents.

"They have money to spend, but are bored," he says. Cai's company recently promoted a Yangtze River cruise. About 500 people paid US$100 each to be on it.

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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SUPERMARKETS VERSUS THE INTERNET

Motorola's vice president and general manager for its China division suggested recently that the demand for computer chips in China would grow by more than 33 per cent per year for the next five years. By 2005, more than half of the world's Internet users is expected to be from China.

Despite an upsurge of advertising on the Internet in Beijing, e-commerce has not yet made an impact on retail sales in China. The delivery of merchandise remains unreliable and phone lines in some areas are relatively poor.

Supermarkets continue to thrive. Carrefour of France, an early foreign entrant, co-owns 22 in China, four of them in Shanghai. Domestic supermarket chains like Lianhua (1998 turnover: US$510 million) and Hualian (US$395 million) operate hundreds of stores -- including one in remote Lanzhou, the capital of Gansu province.

Open-air markets operate in suburban area where space is available, but urban development may push them farther from the city centre. Small family-owned shops continue to exist, but few seem to be thriving.

"Advertising Spending Growing Quickly in China", ChinaOnline, 21 April 2000.

"Motorola Official: China Chip Market to Grow 33 Per Cent", ChinaOnline, 19 April 2000.

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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IMPLICATIONS

Demographic trends combined with a number of other factors changed consumer-spending patterns during the past five years. A continuation of these trends will reinforce the patterns.

What does this imply for foreign-based suppliers?

First, it should not be assumed that products that sell well in Sydney, or New York or London will necessarily sell well in China. As we noted, the emerging tastes appear to be a superimposition of new ones and more traditional ones.

Second, what sells well in Beijing will not necessarily sell well in Shanghai, or Guangzhou or Chongqing. China consists of 31 provinces, autonomous regions and municipalities that are equal to provinces. Traditional tastes differ in these regions. To quote a few examples given by Asiaweek:

For Beijing "sweet tooths", the chocolate of choice is Dove, a simple British confection that comes in bar form. In Guangzhou, bordering Hong Kong, the choice is more likely to be Ferrero Rocher, a far more elaborate product imported from continental Europe and bearing a price tag to match. The difference in preference is not simply price or taste (though they count). Superstition plays a more important role in things in the south, and the fact that the European chocolate is wrapped in gold foil makes it auspicious, particularly as a gift.

In Shanghai, Japan's Suntory is the favourite beer, but ask for it in Beijing or Guangzhou and the barman is likely to give you a quizzical look and offer you a Yanjing or Zhujiang instead. Nearly one person in two in Fuzhou owns a credit card. In Shanghai, that figure falls to as low as one in five. In Beijing, the heaviest skin care users are women between the ages of 20 and 24 and 30 and 34. In Guangzhou, teenagers are the ones who feel they need the help.

Then there is the matter of access to goods. "For inland places, you can't do your advertising in the same way you would in a more sophisticated market like Shanghai," says Miranda Li, Grey Advertising's Hong Kong-based strategic planner for China. In areas where a full range of products is not available, advertisers often do better with top-of-mind messages, which inform consumers about the brand without discussing details. No point wasting your budget on newspaper ads in those markets, either. Billboards are the thing.

Third, commercial practices could benefit from the typical pattern for economic reform in China, with "two steps forward and one step backward". The phrase has been associated with a cautious approach involving selected regional "tryouts" before embarking on a national campaign.

Flexibility in marketing is also likely to pay dividends. Success stories in the next decade are likely to be "re-invention" stories that could be subtitled: What we did when we discovered that Plan A was not working out well.

"8 Things You Didn't Know about Chinese Consumers", Asiaweek, 28 April 2000.

 

 

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SOURCES OF INFORMATION

Asiaweek: http://cnn.com/ASIANOW/asiaweek/

ChinaOnline: http://www.chinaonline.com

People's Daily: http://www.peopledaily.com.cn

 

Send comments on this newsletter to: j.zerby@unsw.edu.au

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