In recent years, China is shifting to consumption-led economy. During past few years, we can see a significant increase in the total retail sales of consumer products and the contribution of final consumption to GDP growth. Noticeably, in 2016, the total retail sales of consumer products reached 332,316.3 billion. Moreover, the contribution of final consumption to GDP growth was 64.6%. On basis of Nielsen’s report, the Consumer Confidence Index (CCI) of the second quarter of 2017 showed a growth and reached 112 since the three elements, employment prospect, personal finance and the willingness of consumers all went up. Importantly, these three elements constitute CCI, which is an index that measures how optimistic or pessimistic consumers are with respect to the economy in the near future. The index is benchmarked to 1985=100, and when it is higher than 100, that means positive, on the contrary, that means negative. Statistically speaking, in the second quarter of 2017, personal finance jumped to a new height from 66 to 69. At the same time, employment prospect rose to 68 from 66 and the willingness of consumers soared to unprecedented heights of 56, which is the highest level since 2014. In terms of the data, it is obvious that personal finance had a bigger growth than the other two elements and it plays a crucial role in the growth of CCI.
Source: National Bureau of Statistics of China
What’s more, there is another feature to which we should pay attention – Chinese consumption quality also ramped up remarkably. This increase in consumption quality inevitably stimulates the whole economy. Ali Research (a research institution sponsored and dominated by Alibaba) developed and applied a new index called Ali Consumption Quality Index. It evaluates the development level of the consumption quality and can be measured by the ratio of consuming amount of high and medium products and above to the total consuming amount. The higher the ratio is, the higher consuming quality is. Then how should we define the high and medium products and what are the metrics? Based on Ali Research’s report, for example, if the price of a washing machine is above 2,000 RMB, the washing machine is a high and medium product, and if the price reaches 3,600, it then is a high-end product. Certainly, different products have different metrics.
Ali Consumption Quality Index increased by 24.3 over 2012 to 2017 with a CAGR (Compound Annual Growth Rate) as 27.8%. By contrast, the pace of growth in the total volume of retail sales of consumer products continued dropping for nearly 6 years. When we take the two indexes above into account, it is apparently that there is an obvious shift from the increase of the amount to the increase of the quality. Furthermore, the increase of the consumption quality is an evident symbol of consumption upgrade.
Source: National Bureau of Statistics of China; Qadisha’s analysis
As the increase of the consumption quality, the Post-80s and Post-90s generation’s consumption customs also changed a lot compared with their previous generation. They become more savvy and demanding, with more specific and different needs and wants. For instance, based on BCG’s investigation, up to 2017, when it comes to a category like skin care, the previous generations in China only need one or two products in this category, in contrast, 30% of 18 to 35 years old consumers buy five types of skin care products.
Benefited from the consumption upgrade, more and more opportunities emerge and are now in the ascendant. Based on the data from EIU (Economist Intelligence Unit), between 2017 and 2021, China will add a cumulative $1.8 trillion as the consumption growth and will reach $6.1 trillion as the total consumption. Significantly, it is imperative for companies to seize the emerging consumer opportunities and take over the huge market in China. In conclusion, we recommend that companies should pay more attention to some points that contain consumer segmentation, brand strategy, consumer engagement and market channels.