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China: Growth Market for the Future

Consumer developments

Access to TV sets and PCs has grown vastly over the last two decades, giving rise to stronger demand for appliances and Internet access. However, ownership of sophisticated electronics, such as DVD players, mobile phones, digital cameras and MP3 players, is still largely restricted to wealthy urbanites.

Holiday taking has increased in China, with rises in levels of disposable income and changes in holiday leave entitlements. The “golden weeks” in May and October are the most popular times for domestic travel, while recent legislative changes have facilitated travel for Chinese citizens abroad.

With rising disposable incomes and increasing time pressures, Chinese people are eating out more frequently. Fast food chains and chained cafés/bars have benefited most from this trend.

With regard to eating habits, while the majority of the rural population still purchases fresh foods, demand for packaged, branded products is growing strongly in urban areas, due to rising incomes, demand for convenience and a stronger emphasis on quality since the outbreaks of SARS and bird flu.

There is a strong trend towards healthy eating and nutrition, which is fuelling demand for products such as organic goods, functional foods and fruit juice and bottled water.

Retailing developments

The retail sector in China is still highly fragmented and underdeveloped. However, this is changing rapidly following China’s entry to the WTO, as a result of the lifting of restrictions on foreign retailers and the need for domestic retailers to become more competitive.

Low-cost retailers, such as Wal-Mart and Ikea, have been sourcing products from China for a long time, but are now beginning to view China as an important future consumer market, rather than just a source of imports.

Hypermarket sales grew by a massive 147% between 1999 and 2004, while sales from convenience stores increased by 71%. Nevertheless, this type of modern retailing format is still very much limited to cities, due to the difficulties in penetrating rural regions, where infrastructure is poor and populations sparse.

New legislation regarding direct selling was introduced in August 2005, which should serve to boost sales of direct-sale health and beauty products in particular.

Internet shopping is also expected to take off rapidly, with value sales already estimated to have risen by 50% annually between 2001 and 2005. Internet auction sites are a particular area of growth.

Factors affecting future demand

There is still vast potential for China’s economy to grow, and GDP is forecast to continue to rise strongly over the next few years, bringing with it a considerable rise in average disposable incomes.

However, China must address some of its fundamental problems if it is to reach superpower status in the long term, including rising unemployment, weakness in its financial sector, the gap in rural-urban incomes and underdevelopment of its service industries.

Social patterns observed over the last five years will continue into the forecast period, including growing urbanisation, smaller but more affluent households and a marrying of Western with Chinese culture.

Modern retail formats, such as hypermarkets, specialist chains and convenience stores, will expand into smaller cities and rural areas in the future, while the increasing acceptance and growth of credit facilities will encourage the purchase of large ticket items.

China’s hosting of the Olympic Games in 2008 is expected to bring new business opportunities and boost consumer spending over the next few years, while Beijing itself will benefit from improvements to infrastructure and living conditions.