*The following is an excerpt from our new One Hour China Contrarian Book (which is available here.).
“Jonathan Woetzel (McKinsey & Co) and I have written three speed-read China books together. In the latest one, we have put together a collection of our essays that basically make four main contrarian points. These main points are:
Point 1: China needs smarter, not faster growth.
Point 2: Yes, Chinese consumers are rising. But they are changing even faster. And they are disrupting everything.
Point 3: China can innovate big time.
Point 4: At home and abroad, Chinese companies can beat you fair and square.
Point 2 (Yes Chinese consumers are rising. But they are changing even faster) is a problem. Much of the current China hope and hype is centered on increasing consumer spending – as a way to rebalance the economy, to drive regional growth and to create new growth opportunities for companies (and investors) everywhere. Virtually everyone is watching and hoping for increasing consumption by middle class Chinese these days.
The good news is this has mostly been happening. Rising Chinese consumers are now a real economic phenomenon, which definitely wasn’t the case 10 years ago. Between 2010 and 2015, they increased in annual consumer spending by $1.1 trillion. That is a big number and represented over 25% of all global growth in consumption. Note: increasing consumption by American consumers was also about 25% of global growth in consumption.
Chinese consumers are now spending and this is going to increase dramatically going forward. We are really just at the beginning. For example, by 2025 there will be over 250M middle class Chinese families. As most spending happens at the household level, this is really the group to watch. So this is all good news.
However…(you knew it was coming)
Chinese consumer spending is also exploding in complexity. Yes, China is in many ways a developed economy, with cities comparable to New York and London. But it is also a developing economy, with cities similar those to South Asia and Latin America. For example, in medicine you see advanced economy diseases like obesity and diabetes. But you also see developing economy diseases like cholera. It’s a mix of both developing and developed economies. Taking a train out of Beijing or Shanghai, you can basically go back in time with every hour you travel.
You also see a wide range within incomes. You have wealthy urban families and you have low income rural families. And, by virtue of the massive population, you also have tremendous specialization. Companies can produce goods and services tailored to very small niches – and still achieve scale.
The result of these factors is an exploding complexity in consumer behavior. You now have millions of sophisticated Chinese travelers spending their vacations in Paris and New York. But you also have rapidly rising inland consumers who are still mostly bargain hunting. You have over 300M Chinese moms, who are a fascinating demographic and tend to make their voices heard in things like milk powder. But you also have Chinese millennials who are spending dramatically differently than previous generations – and are perpetually online. You have the world’s most enthusiastic soccer fans. But you also have the world’s largest population of seniors. And so on.
Chinese consumers and their consumption are just getting more and more complicated every year. My advice is you have to go small. You have to focus on small niches now. Trying to talk about “Chinese consumers” as a group is becoming impossible. The only way to figure it out is to pick a small demographic, like millennials in Chongqing and take it apart. It’s a big complicated picture and going small is the only approach. Plus they are changing very quickly in their behavior. So it’s a moving target.
So yes, Chinese consumers are rising. That is fantastic. The middle class of China (and Asia more generally) will be the largest engine of economic growth over the next 50 years. But these consumers have exploded in complexity and are changing particularly fast. And this is increasingly disrupting markets in China and around the world. Welcome to the new normal.”
Thanks for reading, jeff
I write and speak about “how rising Chinese consumers are disrupting global markets – with a special focus on digital China”.
photo by Steve Webel, Creative Commons license with link here.