China is becoming a significant market for imported goods, facilitated by surging cross-border e-commerce as consumers become both more discerning and increasingly focus on quality of life, according to a new report. By Farah Florentino.
While hard to envisage even a decade ago, consumerism is not only alive and well in China, its thriving to the point where it has become the main driver of China’s economic development with consumption now representing 78.5 per cent of China’s final expenditure to GDP growth, according to a new joint report by Deloitte China, the China Chamber of International Commerce and AliResearch.
This figure far and away outranks the other two of the three major economic components – investment and net exports and this contribution rate has continually risen since 2014, making its role as the primary driver of economic growth even more significant.
Rise of consumerism
China’s rising consumption is driven by China’s substantial and ongoing economic growth which has seen consumers’ income and purchasing power rise sharply. The sustained improvement of infrastructure and constantly enhanced availability and quality of consumer goods has prompted the continuous release of consumer demand, the report states.
In 2017, China’s total retail sales of consumer goods reached CNY 36.6 trillion (USD 5.43 trillion), a year-on-year increase of 10.2 per cent and accounting for nearly 25 per cent of total global retail sales.[pullquote]In 2017, the post-90 and post-95 generations were the largest consumer group, accounting for 45.2 per cent of the overall consumer population, with the post-80s and post-85 generations accounting for 34.2 per cent, in second spot. Overall the population of consumers born between 1980 to 1999 accounts for nearly 80 per cent of the overall consumer population.[/pullquote]
Significantly, ten cities in China, including Beijing, Shanghai, Guangzhou and Shenzhen, rank in the top 100 global consumer centres, which has attracted growing attention of international brands.
Much of the growth in the Chinese retail market is the result of online retail consumption, the size of which reached CNY 7.18 trillion in 2017, a year-on-year increase of nearly 32.2 per cent, the report notes.
It is estimated that by 2025, the overall size of China’s online retail market will exceed CNY 18 trillion, and its proportion in total retail sales of consumer goods will continue to rise, exceeding 25 per cent.
Changing consumption patterns
The nature of this consumption is also changing fast. The report cites the concept of “discerning consumption,” which is a key driving force within the Chinese consumer market. Ongoing income growth has led to ever larger disposable income and an enlarging middle to high income population.
And with the spread of digital lifestyles substantial information is available to this enlarged middle to high income group of consumers. As a result, this group places greater emphasis on “quality, content and shopping experience”, the report notes.
China Customs’ data shows that in 2017, the range of categories of consumer goods imported into China continued to grow, and the choices of daily consumer goods also became more abundant. And, Chinese consumers are not only shifting to more imported consumer goods, but are also shifting from commodities to services.
But the report also notes the rise of domestic brands, particularly in the electronic and electrical product categories which has caused a contraction in imports of foreign brands in these categories. But the report adds that demand for foreign products continues where they offer something local brands do not.
Going forward Chinese consumers are most likely to purchase imported goods in the following categories: Foodstuffs, mother and baby products, cosmetics, watches, glasses and jewelry. The motivations for these purchases are captured by keywords most frequently mentioned by consumers, such as: Safety, quality, price and design, the report notes.
With the growth of cross-border online shopping, consumers are gradually shifting their mind-set from “foreign goods are quality goods”, to selecting imported goods “based on factors like safety, raw material, quality and design”.
The report notes that the post-1990 and post-1995 generations who grew up with the Internet have gradually become the main cross-border consumers. Young consumers are more willing to try new things and spend time studying products and sharing experiences.
The result is that the numbers of consumers buying goods through cross-border e-commerce as a proportion of online consumers has increased rapidly from only 1.6 per cent in 2014 to 10.2 per cent in 2017.
The growth and maturing of the bonded warehouse model in cross-border e-commerce has fed directly into this, as the shopping experience associated with it has improved with delivery times dropping from 9.22 days in 2014 to 4.49 days in 2017.
The cross-border shopping phenomenon has also spread from primarily first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen, to third- to fifth-tier cities, with even faster growth rates.
Foreign brand opportunities
Indeed, the report notes that with continuous improvements in consumers’ shopping experience, consumption of imports has gradually become the norm. The improvements in logistics speed have made the cross-border e-commerce consumer experience almost the same as the domestic experience.
Quality assurance and traceability projects – many using blockchain technology – have boosted consumer confidence. And the growing number of international brands available on cross-border e-commerce platforms, now offer online consumers abundant choices.
The trend of domestic consumption upgrades, in which consumers’ demand for high-quality, personalised and diversified products continues to rise, is also creating opportunities for foreign brands to expand their businesses in China.
The report notes that a survey of purchasing behaviour indicated 84 per cent of respondents have, in the past 12 months, bought imports through domestic e-commerce platforms such as Tmall, Koala and JD.com, alongside more limited purchases through international platforms such as Amazon and Lotte.
Beauty care products, food and health care products, and mother and baby products, are the three main categories driving China’s cross-border e-commerce imports. The report notes it was only in 2014/15 that Chinese consumers began trying cross-border e-commerce purchases with mother and baby products.
Milk powder and diapers were the star performers in major cross-border e-commerce platforms over those two years. Since 2016, consumer demand has gradually shifted from meeting basic daily needs to improving quality of life.
Cosmetics and digital home appliances were Tmall International’s fastest growing categories by year-on-year sales growth in 2016 and 2017 respectively. Consumers’ pursuit of a better life is mainly reflected in three product categories: “beauty” (cosmetics and clothing), “health” (health care products and food) and “family” (digital home appliances and household products).
The full report is available for download here.