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 phenomenaare 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.

And here’s the factoid that really matters. These “new mainstream” consumers accounted for about 5% of China in 2010, with value seekers then accounting for the overwhelming majority. But according to McKinsey, the new mainstream will represent over half of urban middle class families by 2020. This is the important transition that is happening right now. It is a transition from functional to emotional. From basic living to self-realization.

It means Chinese consumers are rapidly becoming much more emotional and unpredictable. Suddenly, when Chinese consumers like a movie, such as Furious 7, they can become the largest source of revenue for it.

In 2015, several multinational fast-food chains got a painful lesson in this phenomenon after media reports of alleged contaminated food in their Chinese outlets. Their global financial results took significant hits. While reported as a food scandal, this incident was really about urban Chinese families caring more about food safety now than in the past. In 2016, United Airlines also got a surprise introduction to this after a video of a customer being dragged down the aisle went viral in China.

Overwhelmed

Conversely, if Chinese consumers decide that a particular brand is safe or better than its rivals, companies can suddenly be overwhelmed with orders. This recently happened to Swisse Wellness Group, one of Australia’s leading vitamin and supplement companies.

During the first half of 2015, Swisse, which had virtually no operations in China, suddenly found its sales into China growing very rapidly. It turned out that Chinese consumers had begun ranking its products highly on Tmall. Revenues for the year (ended in June) jumped to A$313 million ($235 million) from A$125 million a year earlier. And unsurprisingly, a Chinese company (Biostime International Holdings) quickly bought Swisse in A$1.39 billion deal.

Another example is the story of the Bobbie Bear, a bright purple teddy bear stuffed with lavender and sold by a farm in Tasmania. This small lavender farm, a retirement project of owner Robert Ravens, became inundated with orders after Chinese model / actress Zhang Xinyu posted a photo of her Bobbie Bear online. Orders surged to more than 45,000 and the farm was forced to suspend online sales, as it could not handle the demand from China.

Chinese tourists began showing up in Tasmania in droves to make purchases at the farm’s gift shop. The company had to place limits on how many bears could be bought by visitors at the gift shop. Annual visitors to the farm jumped to 60,000. At one point, a hacker, presumed to have been Chinese, broke into the farm’s computer system to try to place bear orders.

The point is that increasingly emotional Chinese consumers (i.e., less pure value seeking) are now regularly causing such events around the world.

Increasing mechanisms

A second factor is that the mechanisms through which Chinese consumers can impact companies around the world are increasing. The Swisse vitamin example was possible because cross-border e-commerce, known as “haitao” in China, now lets consumers there buy overseas goods online and get them delivered to China.

Another mechanism is real estate. Every six to 12 months, Chinese consumers seem to discover a new favorite place and start buying huge numbers of homes there. This phenomenon started in Hong Kong a few years ago. Buying then switched to Vancouver and Toronto. In the last year, we have seen heavy Chinese purchasing of homes in New York and California.

Tourism is another mechanism. The number of trips abroad by Chinese tourists now exceeds 130 million a year and their travel tastes can be unpredictable as well. For example, following the 2012 hit movie “Lost in Thailand,” Chinese tourists started flooding into Chiang Mai, the main tourist hub in the area where the movie was filmed. Arrivals to the city were reportedly up 500% in 2013 alone.

So two important factors are now coming together: the increasingly emotional behavior of Chinese consumers (who are growing in wealth) and a multiplication of the mechanisms by which their behavior can impact the world, often in real-time.

What this means for markets and businesses around the globe is that they can now be directly impacted by what is discussed at dinner tables, in offices and online in China. My recommendation is to start paying attention to those conversations.

Cheers from Beijing, Jeff

(article reposted from Nikkei Asian Review, original located here)

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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