China May Become the World's Second Largest Consumer Market

A recent study by the Economic Intelligence Unit indicates that Chinese consumers only make up 5% of the world’s $36.9 trillion consumption. However, we need to keep in mind that the Chinese consumers barely existed about a decade ago.

The trend in Chinese consumption is significantly moving upward. Retail spending has increased steadily at 15 percent and more in recent years. Chinese consumer confidence remained high even during the worldwide recession in 2008-2009. China has already become the world’s largest market for automobiles, television sets, and cell phones, and the world’s second largest market for luxury goods.

Walking on the streets of China’s bustling cities, one can easily witness prosperity and the consumer boom. Xujia District in west Shanghai, erected from the ruins of abandoned state-owned factories, has become a shopping mecca. Tall department store buildings inundated with thousands of boutique stores and mom-and-pop shops sell familiar global brands like Nike and DKNY. Here you can find everything from jewelry to digital cameras and automobiles within a five-minute walk. On average, about eight hundred thousand people visit the shops daily.

Zhu Yiping, a young entrepreneur who started a Chinese version of Victoria’s Secret, told me that young Chinese consumers are quick to accept new brands and new products because they have no consumer habits inherited from their parent’s generation. For example, men’s dress-shirt maker Perfect Products Group (PPG) enjoyed a huge success when it launched a marketing campaign that used top-name celebrities to brand medium-priced products targeting white-collar workers.

Chinese consumers’ spending patterns are expanding to service industries, as Chinese splurge on travel and entertainment. In a 2007 survey, middle-class Chinese said they belonged to fitness clubs, dined out three times a week, and traveled within China twice a year for pleasure. Because China was closed for half a century, many Chinese also desire to see the outside world. They make traveling abroad one of their primary goals in life. In 1993, when I took a trip to Italy, people mistook me for Japanese, as there were very few Chinese traveling overseas then. In 2007, I went to Egypt and met many Chinese tourists. Most of them were in their twenties and early thirties, touring the pyramids and posing for photographs with their fingers showing a “victory” sign.

In recent years, some have taken up expensive sports, such as skiing. In the winter of 2008-2009, about three million middle class Chinese went skiing, a sport that was unavailable only fifteen years before. China now has around three hundred ski runs, including some in the subtropical south where people can ski indoors. At Nanshan Ski Village, a ski resort near the northern city of Harbin, they manufacture snow from wells deep underground. Every weekend, IT executives, bankers, and media literati pack the resort.

Changes in consumption habits are evident in the exploding use of consumer credit cards. In 2005, there were thirteen million credit cards in China. Only three years later, the number had increased to 115 million. Online shopping is increasing dramatically, aided by the increased use of credit cards. One hundred and twenty million of China’s over 400 million Internet users shopped online.

Yes, there are major obstacles to Chinese consumers increasing their spending, which I will discuss in my next post. Studies predict that the Chinese middle class will wield enormous spending power as it reaches 600 million-800 million people in fifteen years. As their incomes rise, so will consumption, making China the third-largest consumer market in the world after the United States and Japan.  Stanford professor Michael Spence, Nobel laureate in economics, and Shaun Rein, founder and managing director of China Market Research Group (CMR), both told me that China might very well exceed Japan to become the second largest consumer market in the world.