China’s economy will experience never before seen transformations that will change the way people consume goods and services. With government support being a fundamental plus, the country will continue to migrate from an investment- driven model to a consumption- and services-driven model. From a manufacturing powerhouse to an active leader in digital innovation, the countdown has already started. This will have implications for both multinational and domestic businesses. China’s economy will rely on consumption to grow, and the consumers spurring that growth needs to be analyzed and understood in order to profit from it.
What Western CEO Should know about the Chinese Economy?
Before investing in China, Western CEO should know that China is a Changing market, and have a huge potential, but extremely competitive Market. China’s growing global economic influence is an opportunity for every international Company and the economic and trade policies will have significant implications for the United States and European Markets.
Let’s have a look at the China Future Economy
China is a fast-developing market. Everything is moving fast and Chinese consumers are early adopters. China is the Digital Country that most Tech Companies wish to enter, but it is not an easy Market.
- Understand before judge
- And understand before invest
Top 10 Chinese Economy Trends
Trend 1: Middle Class is the future of the Economy in China.
The growth of the middle class is defining consumption. Over the next ten years, household consumption will grow by an average of 6% annually to reach RMB 56 trillion, with the middle class potentially representing an estimated 65% of households. By 2027, household income will have increased by around 5% annually, with industrial jobs redistributed to service sector jobs. Population movement will occur from rural to urban areas, where incomes are higher, resulting in low- and lower-middle-income households, with more spending advancing from necessities to discretionary product categories. China’s government is supportive of the transition to a consumption- and services-driven economy, implementing policies to encourage spending in such areas as health and pensions, discouraging saving.
Trend 2: The Chinese New Senior Economy
China has an aging population that has created new demands. By 2027, an estimated 324 million people will be over 60 years of age. The percentage of working-age labor will decrease while the pressure on social benefits will increase, creating economic challenges as well as expanding opportunities for products and services tailored to this demographic. Elderly consumers spend more on health-related expenses such as dietary supplements, disease treatments, senior care and insurance. Optimum price is important. There is also a demand for senior housing as many of the new elderly will not be able to rely on their children for care.
Trend 3: Millenials are China’s future
Children born in the 1990s will make up 15% of the population, and those born in the 2000s will represent 21% of China’s population, in 2027. This younger demographic differs from its predecessors in two aspects:
– They received financial support from their elders, and they grew up in a life improved by technology and digitalization. They consume more, are less price-conscious and seek instant gratification. They demand higher standards for convenience, quality, and variety. Premium and personalized products and services are required to meet the needs of this demographic.
– Housing, health, and education are areas that will continue to grow, due to larger families and changes in lifestyle.
Trend 4: Urbanization: the real China’s Consumer Market
China’s urbanization rate will continue to increase over the next decade, from 57% in 2016 to around 70% in 2027. The Chinese government is taking a different approach to urbanization by moving focus away from megacity centers toward newly established economic clusters. This has been made possible by advances in technology in the transport and information sector. High-speed trains and drones will make logistics cheaper and faster. High-speed Internet connectivity has a number of possibilities, including the lack of necessity to physically leave your home.
With this tactic of spreading urbanization throughout the country rather than focusing on already established urban areas, people all over China will be able to enjoy a lower cost of living, more recreational space, and less pollution.
Trend 5: The Booming Chinese Sharing Economy
The sharing economy, which took hold so easily in China, was estimated to be worth about RMB 3.45 trillion ($520 billion) domestically in 2016, a sum that included spending both by consumers and businesses. Chinese consumers already have a culture of paying for access rather than ownership, and by 2027, this model of consumption will become a routine part of their lives.
Areas such as taxi transportation and bicycle sharing, are examples of how the sharing economy can be a success, giving more people access to goods and services than ever before. China is home to more sharing economy start-ups than any other country in the world. Technology is shrinking the convenience gap between sharing and owning.
Trend 6 The Potential of the China Tech Market
By 2027, technology will dramatically reshape the retail industry in China, such as the IoT Internet of Things) and AI (Artificial Intelligence) digitalize real-world actions (widgets to digits), self-driving vehicles and drones improve logistics, and augmented reality has changed the shopping experience. The retail sector will benefit from the integration of data and the customer’s journey between offline and online shopping, which will deliver an upgraded experience.
The role of physical stores will transform. Most small-format offline channels will be digitalized and linked to online platforms, and overcome the barriers related to economies of scale. Throughout the customer journey, most successful retailers will engage with customers via online or offline channels. Cashless transactions and ubiquitous traceability of consumption will become the norm.
Consider that Chinese third-party mobile payments total in the trillions of dollars—compared with billions in the United States. By 2027, almost all daily transactions will be on mobile devices and digitally traceable, giving companies the means to generate invaluable consumer insights that will help them develop better-tailored products, services and delivery options.
Trend 7: Digitalization is THE China Economy Growth
Personalized content in media and personalized marketing is leading the way in China. By 2027, the personalization of products and services will become a necessity for businesses. The emergence of AI, robotics, 3-D printing, and other technologies has reduced the cost of personalizing product design, manufacturing, and consumer communications. Chinese Factories are already moving to Digitalization, pushed by Alibaba, Baidu, or Tencent which drive the country in a new Digital Age.
Trend 8: Think Data, Big Data and Smart Data
Corporations that control data will have great influence and substantial competitive advantage. Data is the new top currency. By 2027, China may have less than five companies in control that will extract, process, refine, value, sell and buy consumer data. Emerging technology that makes data more usable, such as machine learning, will resolve this challenge that differentiates owning data and integrating it across platforms.
Trend 9: China is already in the Digital Age
China has 5 years advanced in terms of Digital Economy. Rapid technological development is creating both opportunities and risks for consumers and society. Digitalization and privacy are major concerns in China, especially if a small group of companies owns billions of consumer data points privacy infringement is a big problem. It may pose a serious problem unless a regulatory framework protecting Chinese consumers’ privacy is put in place.
Another concern is the inequality of inclusive growth. The digital gap between those who have access to technology and its benefits and those who do not will widen as technology advances. Solving this requires understanding and serving the different needs and aspirations of people across all demographics.
The rising toll technology takes on the environment and sustainability, must also be addressed. On November 2017 Singles’ Day online sale in China, overall orders from major e-commerce platforms summed up to 850 million RMB, according to China’s State Post Bureau, requiring at least 331 million packages to be shipped from one day’s purchases. Packages and vehicles required for delivery create major environmental and infrastructure challenges that will become more problematic as the industry grows.
Trend 10: Influencers the new China Economy type User Generated Content
Over the past decade, two influences have come to shape Chinese consumers’ attitudes toward culture and lifestyle. Firstly, consumers are more affluent and have greater access to Western culture and lifestyle, thanks to China’s open policy and technological development. Secondly, the government encourages strengthening China’s cultural heritage by incorporating it into national education.
The split in consumers’ lifestyle preferences is almost evenly divided across income groups, generations, and geography. It is also visible in consumers’ chosen sources of trusted information.
Challenges: China’s future predictions
There are uncertainties. A slower middle-class growth could have a very different effect, with consumers refocusing on functional needs. Also, if governments’ policies around the world favor protectionism it would lead to a rise in nationalism. More protectionist and nationalistic policies would reduce consumption and shift Chinese consumers’ attitudes away from a Western lifestyle, contributing to a higher household savings rate.
Solutions for CEO and top Managers to Success in China
To take advantage of China’s big changes over the next decade, businesses serving consumers will need to develop five critical capabilities:
Be Consumer centric:
Easy to Say but Hard to Do … Be Consumer-Centric is a Brand Philosophy, not a department
Companies need to improve their ability to create data-driven personalized offerings. Consumer advocacy (word-of-mouth recommendations) is essential with the power to exert more influence over buying decisions. Consumer centricity is about tailoring experiences from the consumer’s point of view and focusing the organization around the consumer.
Alert and ready for frequent transformations
The next 10 years will be a rapid change, mostly in digital and technological innovations. Companies need to be just as ready to exit losing trends, avoiding the long-drawn-out processes typically associated with incumbents, as they are to enter winning trends.
Digital strategy for major elements of the value chain
Think Digital in China
China’s advances in high-speed connectivity and digital technologies will transform a range of capabilities. Businesses will need to brainstorm the strategic fit of the different technologies and think in terms of their ecosystem (including collaborators, partners, and vendors) as opposed to just their own assets and investments.
Develop the right talent in the right 2.0 organization
The constant, ever-changing transformation of the consumer market in China over the next ten years will create a substantial challenge to companies’ talent strategies. Businesses will need to find talent with the appropriate hard skills. The harder challenge will be finding talent with self-motivation, entrepreneurship, creativity, and want for lifelong learning. The hardest will be the challenges of retaining talent, reskilling workers as required, and keeping them motivated.
The role of leadership will evolve, with multiple roles available. Some will recognize and reward the efficient management of routine processes, and others will value the coaching and development of apprentices as they migrate from one role to another.
Anticipate: Setup your Company’s social responsibility
Consumers will care more about sustainability in the years ahead, a result of the increasingly serious effects of pollution and the government’s determination to mitigate environmental deterioration. Potential employees will value companies with broader missions that value society and the environment.
Socially responsible companies will earn more respect and enjoy a competitive advantage. A focus on sustainability can bring potential cost reductions from reduced resource usage or waste.
Invest in the Future of the Chinese Economy
As China grows into a superpower, investors have the power to shape the country’s consumption future, do not see China’s Economy in 2018, but foresee it for 5 years.
The government continues to implement supportive policies, the market is big enough for current and new businesses, and academic institutions produce a reliable workforce with progressive education models. Investors can develop an ecosystem that benefits consumers and society.
Top Readings: Mistakes of CEO in China
Digital Solution for Brands in China that All CEO need to know
Social Media Marketing
WeChat & Weibo are the 2 basics of Social media. If you want to be successful, your brand has to anticipate and bet on new social media like RED (Little Red Book, Bilibili, Tiktok Meipai … ).
Each industry has specific social media, and creative social Marketing can make a difference at less cost. Ask professional agencies like us to guide you on the Right
Your Chinese Team usually does not have enough insight and experience to advise you on the right Social strategy.
Website and Traffic: Keep Basic
It is still necessary for any brand to have a Website, and get traffic to sensitive targets. Especially if you have a new Brand, Chinese consumers would like to read and understand who you are. Having a Website in Mandarin is the base of every strategy.
And you can not just have WeChat… sound weird to most consumers.
To get Traffic, Baidu is still the number one search Engine and the reflex for every consumer. We do not advise investing a lot, but having a presence on Baidu is necessary.
Mobile Friendly Website… of Course.
The base of every Brand is Reputation first. You can not develop a business in China without a Strong Reputation.
We can help you to do that, we are a specialized Ereputation agency in China. Just send us an email and we will send you our case studies.
What is the Reputation of a Brand in China? Basically Everything!
Public Relations & Exposure in Chinese E-Media.
In the early stage, it is important to have Chinese E-Media to broadcast your Brand message. Sina, Sohu, and Netease have a huge audience and give the New brand credibility.
Specific Magazines can help you as well, eMagazine of course, because in Chine Printed Magazine have no Audience.
Advertising is dying
Advertising is a dying industry and online Advertising is born in a new way. Creating traffic via Banners is not working anymore.
It is always better to have Organic results compared to advertising Results usually.
Create Viral Videos are the New Ads way in 2018, and reach consumers’ hearts is a Good tactic.
Influencers & Community Development
What is the big Changement in Marketing Industry in China is the born and explosion of KOL (Key opinion Leaders) these Web influencers that are able to Create Brand awareness, work on Storytelling, or create Social Sales, via special Social App like Little Red Book, Weibo or even WeChat.
Future of the Distribution
Distribution is the main headache of Brands in China. E-Commerce is, of course, a great option, but enlarging Offline Distribution is also a good option for western Firms and new Tech Ways open new gates to deal directly with Distributors.
Tmall B2D is a new Solution for Every brand that wants to connect with 85000 distributors in China.
That’s the Future. Yes we know
What CEO and Top Manager need to know about GMA
MarketingtoChina is the EMag of GMA (Gentlemen Marketing Agency ).
Startup & Digital
We are a Startup Business model in China, flexible fast growing, and messy.
We are a Pure Digital player, focusing on Digital for 6 years. We follow the Marketing Trends and guide Clients to the right Strategies to enter the Chinese or activate Results.
Not Really Western and not really Chinese
We are an International and Chinese team, We keep Brand DNA and localize Marketing campaigns to maximize Results.
We understand your Chinese consumers better than you do…
We also understand the foreign brands’ Problems when they tried to enter the Chinese market and are ready to help you, step by step, and push our clients to succeed in the Chinese Market.
We try to be Smart, Cost-efficient, and Results Driven… Pure performance Agency.
We avoid Bullshit, avoid promises, and are Dream Killers. I know it is not sexy but our Clients like it.
Contact us and we will show you our amazing Job
Do you think Chinese Economy is going to collapse Olivier?
SHould we listen to the Western Economist ?
Will China economy collapse in 2019?
What’s wrong with China’s economy now?
Is the Chinese economy sustainable?
What did China get right in its economic and social development?
Really good insight about the Chinese Market (not much about economy) but I guess CEO and Top manager should be aware about Market opportunities not much about Chinese economy only good for politicians
How China Economy environment will evolve on its way toward advanced-Market status ? Good question.
I really enjoy this article.
The the governance of china is strong and plannification will save them from poverty.
I would like to know your opinion about The Ceo of China and the rise of xi jinping ?
The Chinese economy will continue to growth and change, move from cheap factory to smart factory.
Thank you for your comment Zona.
my opinion on Xi jinping, wow. hard to say, and maybe in a next article .;-)
People have already written Books about his story…