Despite the slowdown in economic growth in China, a vibrant group of high-speed households will rapidly increase their spending between 2015 and 2020;
These households, which disproportionately consist of households in the middle class and above in urban areas, generate about $1.7 trillion of the $3.2 trillion in total urban consumption.
With rising incomes pushing more households into the middle class and above, the number of high-speed households will rise from 81 million today to 142 million in 2020.
High-speed households will generate about $3.8 trillion of the $5.6 trillion in total urban consumption, according to “A Tale of Two Chinese Consumers,” an article summarizing the survey's findings.
As their ranks swell and their incomes rise, these households will likely be responsible for nearly 90 percent of the increase in consumption during this period.
“These high-speed households will power consumer spending in the years ahead,” said Jeff Walters, a BCG partner and coauthor of the article. “The overall economy may be slowing, but these more affluent consumers are optimistic about the future and their ability to increase their spending.”
Rising incomes—and optimism that incomes will continue to rise—are driving this consumption growth. According to the survey, households with income growth exceeding 5 percent in the past year are twice as likely to spend more in the coming year than households with slower income growth.
Higher-income households are disproportionately benefiting from rising incomes. The average affluent household is expecting nearly 11 percent income growth; the average aspirant household—at the low end of the income scale—only 6 percent. This 5 percentage point difference, given the vast disparity in income levels between these two groups of consumers, translates into a 20-fold difference in actual earnings.
Companies that want to reach high-speed households will need to broaden their distribution channels. Of today's 81 million high-speed households, 46 million are located in lower-tier cities. By 2020, 84 million of the projected 142 million high-speed households will be located in those cities. Companies currently need a presence in 530 cities to reach 80 percent of these households. By 2020, they will need to be in 615 cities.
Companies will also need a multichannel approach. These are digitally savvy and active online shoppers, belying the common belief that online shopping is for students and bargain seekers. Forty percent of affluent households shop online frequently—at least once a week—compared with 20 percent of aspirant households. “These high-speed households are optimistic, active online shoppers, and will power consumer spending in the years ahead,” said Youchi Kuo, an expert principal at BCG.
Overall Consumer Sentiment
Despite the rapid growth of China's high-speed households, the survey results were not altogether positive. The survey found that while half of these consumers feel secure today, believe that their economic future is bright, and are ready to spend and trade up in the next year, the other half are much less confident. The total spending of less affluent urban consumers—the “low speed” households—will grow by just 3 percent annually from 2015 to 2020. More than half of these households anticipate slow or no income growth over the next year.
The overall picture of high- and low-speed consumer markets, taken together, remains positive—but is less than glowing. Overall consumer sentiment is slightly stronger than last year but still below what it was before the global financial crisis.
Three out of four of the yardsticks used to measure consumer confidence were higher this year than last year: a larger share of consumers reported the intention to maintain or increase spending; they also reported higher levels of financial security and job security—not surprising, given the continuing overall strong demand for jobs in China. But by a narrow margin, they reported slightly less willingness to trade up compared with last year.
The share of consumers planning to spend more in the next 12 months declined by 4 percentage points from 2014, from 31 percent to 27 percent, but the share that plans to spend less declined even more, from 25 percent to 19 percent. In the middle, the share of consumers expecting to spend the same in the next year rose from 44 percent to 54 percent.
Read original article
