CHINA’S BIG SPENDERS The new middle class has become the key driving force for China’s consumption upgrade

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Despite the complicated,changing landscape of the world economy,Chinese consumers remain enthusiastic about spending,and consumption remains a key engine driving China’s economic growth.According to data released by the National Bureau of Statistics of China,the country’s retail sales of consumer goods reached nearly 29.67 trillion yuan (US$4.22 trillion) in the first three quarters of this year,a yearon-year increase of 8.2 percent,with consumption contributing 76.2 percent of GDP growth in 2018.

China’s rapidly expanding consumer market is fueled not only by a population of 1.4 billion people,but also by changing demographic structure.China is now undergoing a steep consumption upgrade.The millennial generation has become the key consumer demographic in China.According to the 2018 China Emerging Middle Class Wealth White Paper published by Forbes,228 million Chinese people were born in the 1980s and 174 million in the 1990s,a combined group which has undoubtedly become the main force of consumption in the country.

Among young consumers,the most prominent group is the“new middle class.”After rapid urbanization in recent years,a white-collar group known for knowledge and technology capital has gradually emerged in Chinese society.Most are employed in high-paying jobs in fields like finance,IT,securities and high tech thanks to their extensive education and modern sensibilities.People in this demographic are much more willing to spend on enriching their living experience and improving lifestyles.In terms of everyday consumption,they focus more on lifestyles that demonstrate individual taste for quality of life rather than basic bottom-shelf consumer goods.They advocate a living philosophy flavored with“recreation and enjoyment.”According to China New Middle Class Report 2018 released by Hurun Report Inc.,the“new middle class”group includes 20 to 30 million people living in China.

“New Middle Class”Characteristics

Several characteristics have shown to be quite consistent across the“new middle class.”Analyzing their consumption behavior makes it easy to sketch a profile of“new middle class”consumers.

In his White Paper on the New Middle Class,renowned financial writer Wu Xiaobo published some consumption data on the group.Growing up alongside the development of the internet in China,they were bestowed modern sensibilities such as awareness of personal rights,rational lifestyles,global perspective and indigenous recognition.Quality of life,respect for copyrights,diversification,consumer experience and a sense of participation become keywords of their consumption behaviors.The new middle class is aged 33.7 on average and earns an average annual income of 331,000 yuan(about US$47,000),with 70.1 percent receiving undergraduate education and 24.6 percent holding master’s or doctoral degrees.Most are executives in industries such as IT,manufacturing,finance and real estate.

Those in the new middle class are more rational in consumption and pay more attention to individual aesthetics.They are willing to spend for a better future,resulting in overloaded consumption channels and increased developmental consumption.Despite the growth rates of China’s economy,personal income and spending all slowing in recent years,those in the middle class still retain high consumer confidence.A recent survey showed that 94 percent of the new middle-class population believed their spending would increase in the coming year and 54.2 predicting their spending to increase by at least 10 percent.

The new middle class is willing to invest more on their own personal development and that of their children.Considering that education background can,to a great extent,determine future social status and identity of their children,the group is thirsty for quality educational resources.Data shows that new middleclass families spend 90,000 yuan(US$12,790) on education for their children each year on average in addition to annual expenditures on self-improvement totaling 19,000 yuan (US$2,700).About 90.4 percent of the new middleclass population has paid for knowledge products,and 23.6 percent has purchased more than five courses,spending 4,263 yuan(US$606) on average.

The middle-class population also spends the most on medical services,fitness,and private healthcare.Compared to 2016,more and more people in the new middle class are now paying for private medical insurance.The increased spending on health has made consumers more attracted to natural ingredients in health products such as enzymes,flaxseed and coconut oil.

China’s retail sales of consumer goods reached nearly 29.67 trillion yuan(US$4.22 trillion)in the first three quarters of this year,a year-onyear increase of 8.2 percent, with consumption contributing 76.2 percent of GDP growth in 2018.

According to the 2018 China Emerging Middle Class Wealth White Paper published by Forbes,228 million Chinese people were born in the 1980s and 174 million in the 1990s.

The new middle class is aged 33.7 on average and earns an average annual income of 331,000 yuan (about US$47,000),with 70.1 percent receiving undergraduate education and 24.6 percent holding master’s or doctoral degrees.

From 2016 to 2019,the percentage of new middle-class families with pets increased by 6.1 percent as more and more people welcomed animals into the family.China’s pet market is expected to exceed 250 billion yuan (US$35.5 billion) in 2020,mostly from new middle-class spending.

Customized Market Reform

According to Wu Xiaobo,the new middle class has become the target customers of many brands because the group is expected to have the biggest spenders over the next decade.They constitute the main force of rational consumption,less influenced by showy advertisements and more drawn to new technologies and fresh experiences.

The new middle class pursues individualism and diversity in aesthetics.In their subconscious,consumer goods are divided into“l(fā)iving necessities”such as food and clothing,“necessities for social interaction”such as computers,mobile phones and vehicles,and“fashionable and luxury commodities for selfpresentation and self-realization”such as watches,purses and hobbies.Except for living necessities,the group tends to choose the most suitable or attractive products in the name of fashion,aesthetics and selfrealization.Customized products with high quality and price performance such as Bluetooth speakers,cat nests,dryers,singlelens reflex cameras,floor cleaning robots,music albums,aromatic humidifiers,Lego blocks,luxury watches,and designer handbags are gaining popularity among the new middle class.People in the group believe this mode of consumption is optimal to highlight their lifestyle and values.

Yang Jirui,head of China Consumer Economics Society,notes that spending on clothing,food,housing,transportation and daily consumables represents a way of living.Chinese consumers are experiencing a transition from“catering to basic needs”to“pursuing quality of life.”This trend on the demand side is prompting market reform of the supply side.

How should supply-side enterprises adapt to the changes in the consumer market? Li Baofang,chairman of Kweichou Moutai Group,a renowned highend Chinese liquor company,believes that Moutai should respond by upgrading its product quality and service rather than increasing prices.Wang Zhonglei,co-founder of Huayi Brothers Media Corporation,noticed an integrated upgrading effect across different categories of consumer goods driven by technological advancement.He surmised that the change isn’t about any single product,but a domino effect involving a series of commodities.For instance,online shopping changes the way people buy movie tickets,so they spend less time on the activity of going to a movie,which in turn stimulates integrated consumption upgrading of other commodities.

The change in demands of consumers is forcing the market to place greater importance on innovation,customization and product quality.Today,people can buy almost anything they want,so manufacturers are endeavoring to develop products that are more desirable.According to Sun Yuan,co-founder of online meal kit provider Missfresh,“new retail”should focus on five aspects:researching the demands of the new middle class,fostering new business modes and channels,promoting intelligent marketing,developing new products and improving services.