Understanding the new Chinese consumer

In order to get a full picture of the Chinese economy, it is essential to understand the country’s consumption story. The spending power of local consumers is a key driver of economic growth and an important source of demand for both domestic and international companies.

The 2020s have so far proved to be a challenging period for Chinese consumers. Ever since the pandemic, households have shown a propensity to save rather than consume – behaviour driven by uncertainty over the economy and weakness in the real estate market.

But there are signs that the situation could be turning around in some segments of the market, as a McKinsey & Co survey suggests that consumer confidence has stabilised – especially among urban Gen Z consumers, which are those people born from 1995 to 2010¹.

The improved mood comes after the government implemented a number of measures to stimulate consumption, while the buoyant stock market has the potential to establish a positive wealth effect.

In short, China remains an attractive place to do business for consumer goods companies: “The China consumer market is so broad and varied that companies with the right product always have an opportunity to succeed,” said Edward Weeks, Senior Executive Vice President (Designate) and Deputy CEO, HSBC China, who appeared at the HSBC 12th Annual China Conference.

He was in conversation with Alain Li President, French Chamber of Commerce and Industry - Hong Kong, who gave the perspective of the luxury goods industry.

China’s young consumers present structural opportunities for companies operating in the country. Gen Z is a particular area of focus, due to their outsize importance in the consumer market: accounting for just 20% of the population but representing 40% of the total spending². And they are only going to become more important, as their spend could grow by 400% to RMB16 trillion by 2035³.

Gen Z is very different from previous generations, both in terms of their values and consumer preferences. They are digital natives, who have grown up in a period of rapid economic growth. With more hobbies and a diverse cultural circle, they are focused on expressing themselves and finding authentic experiences.

As such, Gen Z spending habits tend towards experience consumption, such as travelling and attending concerts, and finding self-satisfaction or emotional contentment from IP-related products, cosmetics, and jewellery.

They are also a key demographic in the luxury goods industry, as China is the youngest of the large markets for high-end goods, with the average consumer aged just 29⁴. They are also about to have even greater spending power, as the older generation pass on assets to their children.

He described how social media and influencer marketing is essential for interacting with Gen-Z. But he was also keen to point out that bricks and mortar boutiques still have an important role in providing the experience element of consumption that these younger consumers expect.

Ultimately, the power of social media comes from the two-way dialogue it creates, where brands learn what consumers want and how better to serve them, he said.

Despite the challenging backdrop, there are still areas of the market where consumer goods companies can thrive.

One important trend in recent years is the development of local brands, which are gaining ground against their international competitors. This can be seen across a wide range of products – from EVs, beauty products, and coffee shops to collectible soft toys. Local companies are able to design products that have high levels of cultural relevance, often at a competitive price.

This is also true for luxury goods, where local brands are also taking market share: “I think there is a recognition of the high quality and creativity of Chinese brands – especially those that have really demonstrated Chinese craftsmanship,” said Mr Li.

Jewellery is one luxury segment where this is playing out. It is a big market with a small number of international companies, where value and technique matter for consumers who are looking for goods that can hold their worth and be passed from one generation to the next.

Another consumer trend that will be felt across the world is the strong revival of Chinese travel. International flights are close to returning to pre-pandemic highs, at 93% of the 2019 level, while international passenger flight volumes in the January to August period were up 20% year-on-year⁵.

The return of international travel fits neatly with the growing demand for experience-related consumption. But it is broadly negative for luxury spending in China, as shoppers are buying overseas, where high-end goods are often cheaper.

Increasingly prominent domestic brands and a growing number of travellers going abroad show the diversity of opportunities available in China’s consumption market. Combine this with the growing spending power of Gen Z and the outlook is positive for Chinese consumption going forward, despite the near-term headwinds.

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