China market snapshot: Affluence makes for a lucrative market

Nielsen provides insight into China's economic outlook and retail backdrop.

China, with its huge population and increasing affluence, remains a very lucrative market for companies and brands across the region.  With overall GDP growth of 6.7% in 2016, China regained its status as one of the fastest growing major economies in the world.

Reflecting the positive economic situation, consumer confidence reached 108 points in Q4 2016, up two points from the previous quarter. This was supported by increasingly positive consumer sentiment about job prospects.  Consumers in China continue to spend money as they look to improve their current quality of life rather than prioritize savings. More than half (51%) of consumers believe now is a good time to buy the things they want, up 5% from the same time last year.

In particular, many new jobs are emerging in Western China as the government focuses its efforts on boosting the economy, via the “One Belt, One Road” development strategy and China’s urbanization drive.  Confidence among rural consumers is growing as living standards improve and accessibility to modern ecommerce platforms allow rural consumers to trade up from basic products. As more e-commerce companies look to rural areas for growth, online shopping in counties and villages is becoming a new engine to drive China's domestic consumption fuelled by surging demand.

Looking ahead, China’s population is forecast to be 1.45 billion in 2025, with 65% of the population living in urban centres - 50% in cities of 1 million people or more.  As Chinese consumers urbanise, their access to brands improves as well as their connection to a brand’s values. Sales of premium products, defined by Nielsen, as goods with a price greater than 20% than the average price for the category, are growing at a rapid pace in China. Premium products tap directly into a desire for products that provide specialised, enhanced or exclusive benefits. A recent Nielsen study highlighted 60% of online respondents in China said they are very willing to pay for premium products that have high quality and safety standards.  Delivering on consumers’ expectations of the brand experience remains critical. When a product is positioned as premium, consumers have less tolerance for poor performance or undesirable attributes.

Single’s Day on November 11 has become an online shopping carnival as many e-commerce players now participate in this initiative started by Tmall, Alibaba’s online shopping platform in China. Alibaba recorded a record-breaking $17.8 billion in 24 hours during this year’s event, up from US$14.3 billion in 2015.  Four out of ten mobile consumers say they shop while in a taxi or on the train highlighting the importance of the digital channel in a brand’s strategy.   With 68% of consumers likely to share product experiences, it is pivotal for brands to ensure customer experience is considered a priority to secure loyalty and recommendation.

Specialty and Convenience are the main formats driving growth in the offline retail market as consumers seek out unique offerings and customer service to fit with their busy lifestyles.  The growth in specialty baby stores is set to continue with China’s new 2 child policy likely to add five to ten million more babies each year.  On the opposite end of the spectrum there will be almost 216 million consumers aged over 65 years in 2025. While baby specialty stores currently enjoy strong growth, as the old and young age dependency creeps closer to the same levels, opportunities abound in products and services that will cater to the older consumer of the future.

Sources: All population and urbanisation figures come from United Nations Urbanisation Prospects 2015.