The disrupting power of China's consumers - Jeffrey Towson

Jeffrey Towson

China's consumers are becoming increasingly a force the rest of the world has to take into account, writes Beida business professor Jeffrey Towson at his weblog. Not only have Chinese more disposable income, they not only go for cheap offers, and regularly disrupt the world.

Jeffrey Towson:

Chinese consumers continue to grow relentlessly in number and wealth. This is a well-studied economic trend. But what people are missing is how the changing behavior of these consumers is now regularly shaking the world. 

Suddenly when Chinese consumers start eating more meat, it impacts agriculture in the American midwest. When they discover northern Thailand as a fun destination, they flood the area with tourists. When Chinese consumers change their minds about something, it now ripples outward into the global economy. And these types of phenomena are going to become a lot more noticeable in the coming years. 

The economic trend underlying this is the steady advance of China’s urban middle class families. This is the group to watch. According to McKinsey & Co., Chinese urban household disposable income will reach $8,000 a year by 2020. This will be about the same level as South Korea, but in a much, much larger population. After Middle Eastern oil, Chinese urban middle class families are arguably the most valuable natural resource on the planet. 

But within this big trend, an important shift is now occurring. Urban families are rapidly transitioning from “value hunters” to more emotional, aspirational and free-spending consumers. 

Price-focused consumers have dominated the China story thus far. They typically have had little brand loyalty and tend to shop around for the best deals, mostly for life’s necessities. Chinese companies such as Haier Group and China Vanke have done very well selling these consumers air conditioners and apartments at affordable prices. 

The more emotional group now emerging, called “new mainstream” consumers by McKinsey, already has life’s basics. And they have enough disposable income to buy discretionary items such as lattes and trips to Thailand. 

What this new group cares about is quality, brand and how products make them feel. So they want real iPhones, not cheap alternatives, and they are able and willing to pay for them. What is fascinating about this group is that they behave fairly similarly to consumers in developed markets.

More at Jeffrey Towson's weblog.

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