3 Consumption Trends in China That Could Help Tailor Your Business Strategy

In a vast and populous country like China, where living standards are constantly on the rise, consumption trends provide ample reason to consider entering the Chinese market. Over the last two years, China has been at the forefront of global consumption, and local consumers are predicted to keep buying more than any other country.

Following these market trends can help define and fulfill business goals in the long run. We recommend subscribing to the China Business Updates newsletter and join other international companies already doing business in China, keeping their market knowledge up-to-date and fine-tuning their operational strategies. If your company wants to kick off a China market entry– The China Business Updates is a great source to learn about the Chinese market.

At PTL Group, we monitor business and consumption trends in China, in order to provide our clients with a snapshot of the current local consumer behavior. Since the 2020’s dawned on us, we’ve witnessed a fascinating process of how social, demographic, and economic factors have all played their part to impact and alter consumption patterns in China. Among them are the growing local purchasing power, increased demand for technologically advanced products, and a national inclination toward buying certain foreign branded product categories. With all of this in mind, we are delighted to share a recent report by McKinsey & Company that outlines several consumer trends shaping the next decade of growth in China. In the following article, we summarize three of the trends described in the report that every brand engaged in doing business in China can better examine:

1 – An increase in households’ purchasing power will yield increases in ‘luxury’ or high-end consumption

China’s economic echelons keep expanding. In 2000, over a billion Chinese citizens couldn’t afford to spend more than $11 per day. However, by 2030, the same amount of people are expected to climb up to the consuming class (those who are able to afford some discretionary goods and services on top of the basic necessities). Better yet, the number of households in the middle-class and higher income brackets are expected to grow to 400 million (roughly the same as in the USA and Europe combined), and the number of millionaires in China is expected to double from five to ten million.

The larger the number of wealthy households in China, the more popular luxuries and premium products will become. For instance, the Chinese market is over-represented in discretionary spending categories such as fashion, accessories, high-end cars, and electronics. One prominent category to point out is electric vehicles. 40% of the global spending on electric vehicles originated in China, and local sales of electric vehicles are growing seven times faster domestically than the global rate.

The same goes for self-care products goods such as premium beauty and personal care products. Generally speaking, the Chinese beauty and cosmetics market is roaring ahead. In 2018 China was the world’s second-largest cosmetics market and is predicted to keep growing by a consistent 6% annually until 2025. Read more about sales of beauty products in China’s e-commerce, and e-commerce services in China.

2 – Advanced technological services permeate into more localities and more sectors

While the lions’ share of consumption concentrates in China’s 30 largest cities, tier 3, 4, and 5 cities are becoming increasingly attractive for both B2B and B2C brands.

Take the city of Nantong as an example, where the local government has invested in digitizing its healthcare and education services, and now it is ranked 6th out of 110 Chinese cities in terms of satisfaction with the quality of public services. These processes also take shape in the domestic tourism industry, where more and more local tourism hubs invest in digital services and transportation infrastructures to appeal to tourists.

The sophistication of products and services has become a standard requirement by local consumers, so much so, that it is crucial to ensure success in China. Read more about the relationship between sophistication and manufacturing in China.

3 – Favorable attitudes toward foreign brands in several industries such as automotive, wellness, and more

Patriotism in consumption (referred to as Guochao), or in other words, consumers’ preference to buy Chinese goods and services, has been a developing trend in China in recent years. This tendency is witnessed in fervent discussions on social media channels and tighter competition between local and foreign brands.

However, foreign brands still enjoy superiority in some pivotal categories, especially those that were historically dominated by global players, such as the automotive and beauty industries. For instance, in China’s beauty sector, 86% and 75% of Chinese consumers prefer buying foreign skincare and personal care products, respectively. Local brands lost momentum in the sportswear and footwear sectors, with their sales falling by 5-10% between 2015-2020. When it comes to the automotive industry, despite the rapid emergence of Chinese premium vehicles, they account for only 6% of the domestic market share. Foreign automotive manufacturers who wish to enter the Chinese market might consider operating in one of China’s industrial clusters. Read more on how to get the most out of your manufacturing in China.

China’s consumption trends continue to shape local business landscapes and guide companies while defining their China market entry approach. But by any chance, you are always welcome to get in touch for more China business support.