Understanding the Chinese Consumer

By Dan Hua - China Business Expert

This is another Chinese demographic study on the Chinese consumer and the Chinese culture. We think this is very important to understanding how to do Business in China, export to China, and import from China.

We learned a decade ago that only less than 25% of Chinese consumers owned a refrigerator and less 10% owned a vaccuum. Given those numbers, it would appear logical that, with their rising incomes, more Chinese consumers would want these items. Compared with 1990 a lot more Chinese households now own a TV set, a phone, a refrigerator, a vacuum cleaner, and a washing machine. However, the rate at which these products are now purchased are dwarfed when compared with that of higher-technology products—products that may not save labor but rather enhance enjoyment and entertainment that satisfies individual tastes. Within a decade, ownership of color televisions doubled. The percentage of households reporting they have DVD players jumped from 7 percent in 1997 to over 50% in 2005. The number of households with computers grew from 2% in 1994 to 14% in 2005 (increasing by a percent a year!), and the number of those with cell phones jumped from 10% in 1999 to 49% in 2005!

What does all this mean for a company planning to do business in China? First, it is evident that desire is outstripping ability, and that the traditional bellwethers of modernization don't necessarily apply. Chinese consumers want more than just function. This is one reason why Nokia, which has emphasized fashion over function, has seen its cell phone sales in China rocket past those of Motorola and Ericsson. If a company wants to sell vacuums or washing machines in China, it had better pay attention to emotional needs as well as physical ones. And if it's selling microwave ovens, air conditioners, and TVs, it should be sure those products are as fashionable as they are reliable.

The Chinese urban market.
Some Western managers see the continuing rise in China's average income as an opportunity across an entire nation. Others divide China into two worlds: the major cities such as Beijing, Guangzhou, and Shanghai; and all other locations. Both perspectives are incomplete. While it's true that average income has increased, some Chinese are benefiting far more than others. And while there are sharp differences between the incomes of urban and rural dwellers (urban Chinese earn almost three times more than rural dwellers do), affluence is growing not just in the big three cities but in what has been termed the "third China"—the midsize cities such as Xi'an, Nanjing, and Wuhan, which may afford some of the largest opportunities for marketers.

Indeed, a relatively well-to-do segment is expanding briskly across the nation. In 1997, about 3.5% of Chinese households had annual incomes of 30,000 renminbi "RMB" (about $3,900 U.S.). In just 9 years, that figure skyrocketed to over 14%; half of those living in the big three rich cities have achieved this level of income. These consumers can afford the products that other Chinese may only dream about.

In some product categories, where consumers live appears to be a more important predictor of spending than affluence. This may reflect the needs of urban dwellers for products such as air conditioners or the availability of technology support for items such as computers. In other categories, like automobiles, affluence is the largest predictor of ownership.

By and large, affluent urban dwellers already own a fair amount of what they want: Televisions and mobile phones are ubiquitous. Accordingly, opportunities in this market spring more from upgrades than from first-time product sales. The product-marketing game in the affluent world is now about brand share. Though marketers will still use the first-time-sale approach in rural areas, many affluent city dwellers will now be drawing on their direct experiences and will be persuaded not only by company-managed communications but, more powerfully, by word of mouth.

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