Introduction
China has experienced rapid economic growth in the last three decades, thereby becoming the second-largest economy in the world. In the last thirty years, the country maintained an average annual GDP growth of 10% (Cristadoro & Marconi 2012, pp. 275-299). This remarkable achievement is attributed to the government’s efforts to liberalize the economy and to invest in various industries. The rapid economic growth has been accompanied by improved purchasing power among the Chinese. Consequently, frugality and modesty are rapidly being replaced with consumerism in China. A large number of Chinese are increasingly spending on luxury and foreign brands rather than saving. Thus, most multinational companies believe that they have to join the Chinese market in order to improve their sales and profits. This paper will discuss the dynamics of the Chinese consumer and its influence on consumerism. Specifically, the influence of demographic factors such as income, women empowerment, and purchasing habits on consumption will be discussed.
Income Levels
In the last decade, disposable income in China increased by “three to five times faster than in the developed world” (PRWEB 2008). As a result, China has become the second-largest consumer market in the world. The main factor that accounts for the rapid increase in disposable income in China is the market-oriented reforms that have been implemented by the government. The establishment of the material market created more opportunities for job creation through production of a variety of goods. Moreover, the growth of the labor market enabled Chinese to demand higher wages, thereby increasing their disposable incomes (LaVallee 2011). The reforms were supported by state policies that focused on expanding light and service industries, as well as, improving standards of living. For instance, the government uses low taxation to encourage consumption in the private sector. Privatization and commercialization of state enterprises also facilitated the equitable distribution of wealth and improved purchasing power in the country.
The reforms described in the foreign paragraph have led to an increase in disposable income in urban areas from 690 Yuan in 1985 to 17175 Yuan in 2009 (LaVallee 2011). In rural areas, disposable income increased from 686 Yuan to 5153 Yuan between 1990 and 2009. This suggests that consumption is higher in China’s urban areas where disposable income is significantly higher than in rural areas. This explains in part the concentration of large retail outlets and luxury brands in major cities such as Beijing. Despite the disparities in income between rural and urban areas, the overall purchasing power in the country is still high due to the low poverty rate. In particular, China’s poverty rate reduced from 50% in 1980 to 2% in 2010 (Cristadoro & Marconi 2012, pp. 275-299). This means that nearly all Chinese are able to afford basic consumer goods.
The increase in the number of millionaires and billionaires also promotes consumerism in China. By 2010, there were approximately 1,363 billionaires in the country (LaVallee 2011). Most of the millionaires and billionaires consume luxury goods such as high-quality and customized watches and jewelry (LaVallee 2011). This has increased demand for imported brands that are known for high quality and durability. Overall, high disposable income is one of the main drivers of consumption/ consumerism in China. This creates opportunities for both local and foreign companies to increase their revenue by serving the Chinese market.
Saving Habits
The level of savings in China is significantly higher than in most developed countries such as the US and the UK. In 2007, China’s domestic savings was 48.6% of its GDP, whereas in the US the savings was 13.6% of the GDP (LaVallee 2011). China’s consumption rate is less than 50% of its GDP, whereas in the US the consumption rate is nearly 70% of the GDP (LaVallee 2011). Lack of adequate social safety nets is the main factor that forces China’s population to focus on saving rather than spending. The reforms implemented by the Chinese government in the last three decades focused on promoting economic growth rather than creating social safety nets to protect the low-income earners in the population. In particular, the country still lacks adequate social programs such as pension schemes and healthcare insurance. Consequently, the citizens have to save in order to avoid poverty in old age or the catastrophic effects of diseases (Wiseman & MacLeod 2009). The propensity to save is high across all age groups except among teenagers. A high propensity to save is a threat to companies that intend to serve the Chinese market since it reduces the amount of money that is available for immediate consumption.
The high saving rate has not had a significant negative effect on consumption in China. High economic growth has enabled the country to maintain high consumption despite its population’s high saving rate (Wiseman & MacLeod 2009). By 2005, nearly 96 out of every 100 households in the country’s urban areas had washing machines (Wiseman & MacLeod 2009). Additionally, there were mobile phones in nearly every household. This indicates that high savings do not discourage consumption in China. Individuals’ desire to spend on high-quality goods and services increases after they attain a certain minimum income level (Wiseman & MacLeod 2009). Thus, Chinese consumers are more likely to increase their expenditure rather than savings as their incomes increase.
Cristadoro & Marconi (2012, pp. 275-299) opine that savings in the current period are not a threat to firms that operate in China since it represents postponed rather than lost consumption. To elucidate, the money saved by the population today will be used for consumption in future. The benefit of this strategy is that consumers will be able to smooth their consumption in the long run. Specifically, consumers will be able to maintain their current level of consumption by utilizing their savings during the economic downturn that might occur in the future (Cristadoro & Marconi 2012, pp. 275-299). For instance, most Chinese companies were able to survive the 2008/2009 global financial crisis since consumption in the country did not fluctuate significantly.
Purchasing Habits of the Chinese Population
Consumption in China is greatly influenced by the citizens’ purchasing habits. Most Chinese consumers are interested in quality bargains so that they can save their money to purchase more high-quality goods and services. In this regard, the Chinese use a variety of shopping platforms that enable them to obtain the best deals in the market. These include online shopping, utilizing catalogs, and buying from wholesalers (PRWEB 2008). These strategies enable the consumers to access a variety of goods and to compare prices in the market. As consumers get access to more brands, sellers are forced to reduce their retail prices in order to retain their customers.
Chinese also prefer to shop in groups that consist of friends and relatives in order to get the best deal in the market (PRWEB 2008). The rationale of this strategy is that the consumers are able to negotiate for group discounts, which lower the overall cost of purchasing various goods. Shopping in groups is also beneficial to sellers since it encourages bulk purchases. Group purchases encourage consumerism because members of the group are often influenced by their peers to engage in impulse buying of goods and services. As skillful hunters, Chinese consumers shop in order to enjoy the thrill associated with searching for the best deal in the market (PRWEB 2008).
Although Chinese consumers value brands, they do not maintain their loyalty to them (PRWEB 2008). Chinese consider the quality and the practical benefits associated with a particular brand to be more important than its emotional appeal. The majority of the consumers make their purchase decisions based on the technical differences between different brands. They are also interested in products with superior qualities such as excellent functionality, reliability, durability, and ease of use. Chinese consumers focus on conducting personal research, consulting colleagues, and experimenting with different brands to make the right purchase decision (PRWEB 2008). As a result, the consumers easily shift their loyalty from one brand to another. In response to this challenge, companies operating in China have had to ensure that their brand promises are credible. In particular, they have to deliver the qualities and benefits associated with their brands in order to retain their customers.
The Chinese, especially, the affluent are interested in luxury and imported brands. For example, Australia’s UGG snow boots are performing very well in China. The boots’ market share increased from 14.50% in 2008 to 20.11% in 2012. Moreover, the demand for the boots is expected to increase by 19% by 2015. Chinese consumers associate ownership of luxury brands with success and having good taste (KPMG 2007). Most consumers are willing to buy luxury goods even if they cannot afford them. Thus, retail sales for luxury goods have been increasing in response to rising disposable income among the citizens. Consumers of luxury goods consist of members of the middle class and individuals below the age of 34 years (LaVallee 2011).
Empowered Women
Chinese women have been socially and economically empowered over the years, thereby becoming a major force in consumption. The total purchasing power of young Chinese women who are single or married with no children is expected to increase from $180 billion in 2005 to $260 billion in 2015 (Lei 2007). Although women are not always the main breadwinners in China, they have a considerable control over the expenditure of household income. Nearly 78% of married Chinese women are responsible for making purchase decisions for consumer goods such as groceries and clothes (Lei 2007). In addition, nearly 25% of married Chinese women participate in making decisions for the purchase of expensive and durable goods such as cars and houses. The final decision on the type of durable or expensive good to be purchased in most households is mainly influenced by the personal preferences of women.
Research shows that most working Chinese women focus on spending rather than saving. Approximately 65% of Chinese women spend over 60% of their monthly income (Lei 2007). This implies that most women prefer to consume rather than to save for the future. Generally, the level of consumption and savings among Chinese women is influenced by their income levels and positions at work. Women with high income or senior positions at work tend to spend a larger proportion of their monthly income on consumption rather than savings (Lei 2007). By contrast, women with low monthly income and those who hold low ranks at their workplaces tend to save more and spend less. In this regard, consumption in the Chinese market is expected to increase in the future as more women join the job market to increase their earnings. The main goods and services that are purchased by Chinese women include houses, white goods, and children’s education. Thus, the companies that sell these goods and services are likely to be the main beneficiaries of the expected increase in consumption by women in the next decade.
Conclusion
China has a great opportunity for companies that intend to expand their market share and increase their profits. The country has one of the largest populations with high purchasing power in the world. Chinese consumers are interested in high-quality brands. In addition, they appreciate foreign brands that promise superior qualities. Consumption in China is expected to increase as the economy continues to grow, thereby increasing the wealth of the population. The main threats to consumption in China include high saving rates and income disparity between urban and rural areas. However, the saving rate is expected to reduce in the future as the government establishes social safety nets.
References
Cristadoro, R & Marconi, D 2012, Household Savings in China, Journal of Chinese Economic and Business Studies, vol. 10 no. 3, pp. 275-299.
KPMG 2007, Luxury Brands in China, Web.
LaVallee, A 2011, China to Overtake Japan in Luxury Demand, Web.
Lei, T 2007, The Rise of Female Consumerism, Web.
PRWEB 2008, Consumer Marketers May be Poised for Big Mistakes in China, Web.
Wiseman, P & MacLeod, C 2009, Consumerism has Not Caught on Yet in China, Web.