2020 Chinese Consumer Report: A Summary for Busy People

McKinsey has just released their consumer and insights report “Meet the 2020 Chinese Consumer”, that hopes to identify trends that may influence companies´ long to medium term strategic thinking. You may download this report from here.

If you want a brief recap of what you will find there, these are some highlights:(but I encourage you to read the full version)
Introduction:

-Consumption, rather than investment, will be the driving force for GDP growth. It will account for 43 percent of total GDP growth by 2020, compared with a forecast contribution from investment of 38 percent, internal research suggests.

-Transition from investment-led to consumption-led growth will depend on several factors: continuous rapid urbanization, government measures to improve social security and boost private consumption (aggressive measures to boost private consumption are a key plank of the latest five-year plan), and financial sector and industrial reforms that will lead to the creation of service sector employment and increase income.

Changing Demographics:

Many of the changes taking place are common features of rapid industrialization: rising incomes, urban living, better education, postponed life stages, and greater mobility, for example. But there are also some unique factors:

1.Shift in Consumer Profile: from Value Consumer to Mainstream Consumer

-Per capita disposable income of urban consumers will double between 2010 and 2020, from about $4,000 to about $8,000.

-“Mainstream” consumers (relatively wealthy households-annual disposable income of between $16,000 and $34,00) is expected to reach 51 percent of the urban population compared to 6 percent at present.

-Why is this important for companies?
82% of the consumers fall currently into the “value” category ($ 6,000 to $16,000 annual disposable income), which has clear implications for companies that must decide between targeting the smaller group of afluent/mainstream consumers or stretch their brands to serve value consumers. This will not be the case in 2020.

-Currently, around 85 percent of mainstream consumers are living in the top 100 wealthiest cities. Another 10 percent of mainstream consumers live in the next 300 cities today, but this percentage will swell to nearly 30 percent by 2020.

2.Aging Population

-Life expectancy rises and birth rates fall—the latter the result of the one-child policy that was introduced in the 1970s and remains partly in effect today.

3.Postponed Life Stages

-In 2020, 40 percent of high school students will enroll in college (25 percent in 2010). This will have some implications:
-postponing marriage and having a family
-more time for recreation, entertainment, and travel
-more time to spend with friends and colleagues, changing the tone of family relationships as peers become increasingly influential.

4.Increasingly independent women

-Despite this historic bias toward male children, women are playing an increasing role in the economy (67 percent of the workforce compared to 58 percent in the United States in 2009).

-The one-child policy has freed many women from caring for large families, indicating that workforce participation rates will rise further.

-Income gap between men and women, already smaller than in many developing countries, may narrow further. Women will be increasingly independent and become equal partners in financing their family’s purchases, as well as attractive consumers in their own right.

Mainstream Consumer: New Spending Patterns:

Some key trends in spending patterns in the next decade.

1.High growth in discretionary categories

Higher incomes and government efforts to boost consumption will benefit all consumer-facing companies, although to varying degrees depending on their product portfolios. Discretionary categories will show the strongest overall growth.

2.Tendency toward trading up to better versions of goods and services

This trend will be driven increasingly by consumers aspiring to improve themselves, the way they live, and their perceived social standing

3.Emergence of a senior market

-In 2020 there will be extra 126.5 million citizens above age of 65, clearly an important consumer segment.

-Spending patterns of older people in 2020 will differ from those of older people now, with less inclination to save and more willing to spend on discretionary items such as travel, leisure, and nice clothes than today.

4.Evolving geographic differences

-Geographic disparities in spending will remain significant over the next ten years. While the gap in basic necessities will narrow it will widen for discretionary categories such as consumer electronic products, reflecting differences not just in wealth but taste too.

-Strong, regional differences in tastes and attitudes will remain, which means some regional companies, are likely to dominate locally, helped by strong, regional economies of scale.

 

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