China’s 2020 Consumer Demographics

China’s 2020 Consumer DemographicsAs China gradually shifts its economy from an investment-led growth module to a more consumption-driven structure, be prepared to engage a more individualistic and emotional Chinese consumer in the near future, suggested a new study conducted by the international consultancy group McKinsey & Co.

In its report “Meet the 2020 Chinese Consumer,” McKinsey predicted that China’s GDP would grow 7.9 percent annually over the next 10 years and, by 2020, consumption would account for about 43 percent of China’s economic growth, compared with a forecast contribution of 38 percent from investment. Statistics from the firm show that investment currently accounts for 53 percent of the country’s economy. Private consumption will represent 39 percent of GDP by 2020 and government consumption will be 13 percent, the report added. “Meet the 2020 Chinese Consumer” is based on an extensive survey that covered more than 15,000 individuals in 49 cities as well as consumption patterns for 60 products involving 300 brands.

The study highlighted several key factors of China’s consumption-led economic growth: Surging disposable incomes, rapid urbanization, and government-led efforts to boost consumption by improving social security and technological transformation. Additionally, improved education, the one-child policy, and an increasing number of independent women will also affect China’s spending habits.

“The Chinese government is smart to deal with the issue by taking measures seriously to bolster domestic consumption, Chinese economic growth will rely more on its domestic market rather than on other countries,” said Max Magni, McKinsey’s head of consumer goods for Greater China.

Furthermore, China’s internet market will continue its soaring growth with the domestic internet population skyrocketing to over 1 billion by 2020, the report forecasts, more than doubling the estimated 420 million in 2010. McKinsey indicated that web service companies such as China Mobile, China Telecom, China Unicom, Tencent Holdings, Alibaba, Baidu, Shanda Games, and Sohu are likely to be the biggest beneficiaries of the giant market, as more and more people will be shopping through various internet platforms.

The report, which focuses mainly on China’s urban population, said that by 2020 about 850 million people (or 60 percent of the country’s total population) will be living in cities. This will prove to be an immense driving force for consumption heading into the future.

In terms of disposable incomes, the middle-class – which are classified by McKinsey as “mainstream consumers” with annual incomes of RMB106,000 (US$16,000) to RMB229,000 (US$34,000) – will account for 51 percent of the total urban population by 2020.

“Although [the Chinese population’s] absolute level of wealth will still be quite low compared with that of consumers in developed countries, this group comprising of… close to 400 million people will become the standard setters for consumption,” the report said.

Regarding the spending behavior of Chinese consumers, McKinsey projected they would become more emotional and many would be purchasing more expensive products of higher quality and status.

“The disposable income growth of Chinese consumers will fuel more discretionary and aspiration-driven spending, which includes the purchase of better-quality items such as family cars and small luxury items, which translates into higher profits for retailers,” said Yuval Atsmon, a principal at McKinsey.

For professional assistance in China contact Rosario Di Maggio at rosario.dimaggio@dezshira.com or visit www.dezshira.com

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China Briefing hosts a wealth of business intelligence on legal, tax, and operational issues in China from a practical perspective. Knowledge, expertise and commentary for China Briefing is regularly contributed by Dezan Shira & Associates´ professional legal and tax staff. Currently located in Futian district, Dezan Shira & Associates has been assisting foreign companies in Shenzhen for 22 years.

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