As China relaxes pandemic-related restrictions, consumer companies are reviewing their plans for investment in the world’s second-largest economy for 2023.
In a new report, global consultancy McKinsey identified five consumptions trends at play in China that executives should ponder before deploying resources in the year ahead.
“If, and when, consumers bounce back, they will certainly have a lot of money to spend,” said McKinsey’s consultants including Daniel Zipser in the report.
Historically high savers, Chinese consumers in 2022 doubled-down on their intent to put their money in the bank rather than spend it. Savings deposits swelled by RMB14 trillion ($2 billion) during the first nine months of this year.
According to McKinsey’s nationwide survey of 6,700 Chinese consumers conducted in July, 58% of urban households wanted to “put money away for a rainy day,” the highest level since 2014.
Inbound foreign direct investment (FDI) in China has been running at historical highs, having hit a record $181 billion in 2021, according to China’s Ministry of Commerce. FDI again expanded rapidly in the first six months of this year, rising 24% year-on-year.
Consumer companies in China are consequently scrutinizing their strategies, said McKinsey, so the consultancy laid out the top trends to watch:
No. 5: The middle class continues to rise
Double-digit growth of upper-middle income and above households is powering robust consumption growth. Over the next three years, China is expected to add another 71 million upper-middle-class and above households.
No. 4: Premiumization maintains momentum
Affluent consumers prefer premium over mass-market brands. For example, sales on Tmall of premium skincare brands enjoyed compound annual growth of 52% between 2019 and 2021. This implies it more than doubled, compared with just 16% for mass-market brands, said McKinsey.
No. 3: Smarter choices, but not trading down
Consumers are switching to cheaper channels and more aggressively seeking discounts and promotions. They know the precise ingredients that go into their skincare routine, for example, or can compare and contrast the thermal efficacy and down content of their jackets.
No. 2: It’s all about the product
Consumers are savvy and know how to educate themselves about the technical specifications of their favorite products on social media.
No. 1 Local companies are winning
Consumers are choosing local brands for their quality and innovation and not just for cheaper prices, or out of a sense of national pride.