Changing consumer trends in China

We are often told that we are living in the ‘Chinese Century’, but what does this mean? On a recent business trip I was struck by the sophistication with which Chinese consumers browse, shop and sell today. Here are some thoughts on changing consumer trends in China and how they might affect your business.

WeChat on the rise

Chinese consumers now use the messaging service WeChat for all types of payments. From splitting the bar tab with friends to buying a designer handbag, WeChat allows customers to send payments linked to their Chinese bank accounts. The popularity of the messaging service has drawn major retailers away from T-Mall, once thought to be the future of online shopping in China. Coach recently closed its T-Mall store to focus on WeChat, while other brands including Dior, Bulgari, Cartier and Longchamp are embracing the platform for its more personalized, exclusive feel.

Experiences matter…

CEO of Maison de la Chine, Patricia Tartour, identifies international travel as a key indicator of status in China today, giving those who travel access to the same global knowledge, cultural and culinary experiences sought out by western travelers. In online discussion boards prior to Golden Week this year, South Korea was the most talked about destination, followed by Thailand and Japan. Chinese consumers are traveling more autonomously, in family groups rather than tour groups. They are also becoming more adventurous in their travel destinations, looking further afield than Hong Kong for experiences that combine culture, entertainment, fashion, history and a little shopping.

…as do luxury goods (still)

Luxury shopping continues to be a favorite pastime of Chinese consumers. This year, the brand with the most ‘buzz’ was Louis Vuitton, followed by Chanel and Georgio Armani. Louis Vuitton continued to appeal to younger consumers through its successful collaborations with superstars such as Fan Bingbing and Jing Boran. This year, the luxury products Chinese consumers discussed most online were beauty products, followed by handbags, watches and jewelry.

Where does the money come from?

Every evening in Beijing you will see throngs of well-dressed young people hopping from restaurant to bar, carrying the latest bag or wearing the latest headphones. Helen Wang discusses the two underlying reasons Chinese millennials have high amounts of disposable income. Firstly, they do not graduate with student debt, as their parents save the money to pay for their education. Secondly, most Chinese families own their own houses, allowing their young unmarried children to live with them or in a second property without incurring housing expenses. These two factors, combined with the one-child policy and low savings rates among young people has created a generation of Chinese millennials with high spending power and the desire to exercise it.

We are sure to see new and exciting developments in 2017 as retailers embrace new technologies and platforms in order to keep up with the increasingly sophisticated Chinese consumer.

Singles Day: Time to 'Treat Yo Self'

Last Friday marked 11.11, known in China as ‘Double 11’ or ‘Singles Day’. Originally created as an ‘anti-Valentine’s Day’, the holiday was adopted by Alibaba in 2009 in order to boost sales during a traditional lull in retail sales before the Chinese New Year season. Singles Day is now a day for single people (and everyone else) to buy themselves something nice. And this year, buy they did.

In 2015, shoppers clocked up $14.3 billion dollars in sales in 24 hours to mark a 55% increase on the previous year. In 2016, total sales grew to $17.8 billion, a 32% increase on 2015. Of these, 82% of purchases were made on a mobile device. These figures dwarfed the 2015 Black Friday sales in the United States which totaled just $10.4 billion.

Singles Day is an intriguing cultural development in a nation not known for celebrating the individual and consumerism. Retailers have gone to extreme lengths to draw customers, bringing in stars from all over the world including basketballer Kobe Bryant, David and Victoria Beckham and ‘Blonde Bond’ Daniel Craig for a four-hour live-streamed gala. An estimated 40,000 retailers participated in this year’s event, offering interactive online stores, augmented reality and virtual reality shopping in addition to the steep discounts shoppers have come to expect.

The staggering figures from today’s Singles Day tell us the event is here to stay. It is also spreading beyond China, with 11.11 discounts noticeable here in the US as local retailers look to cash in on the trend. Participation by international companies such as Starbucks, Uniqlo and Gap suggest that foreign brands view the day as an opportunity to attract and acquire a new set of customers.

This ‘holiday’, driven by pure consumption, reveals much about the Chinese consumer in 2016. She is technologically savvy, sophisticated, price conscious, brand aware and ready to spend on herself. She is also demanding, seeking to be entertained as a part of the shopping experience. This year's extravaganza clearly demonstrates that retailers must offer both deals and delight if they are to compete for the 'Singles Day' customer. 

How the U.S. general election will impact U.S. - China relations

Last Sunday night marked the first of three debates between the Democratic nominee Hillary Clinton and the Republican nominee Donald Trump as they tousle for leadership of the free world. The outcome of the election in November will reverberate far beyond US borders, influencing our relationships with our neighbors and trading partners.

An analysis of the two candidates and their attitudes towards China demonstrates another key difference between them. In August, the Carter Center’s China Program and the Georgia China Alliance cohosted “U.S. - China Relations: After the 2016 Presidential Election.” At the conference, Dr. John Garver, Professor Emeritus of the Sam Nunn School of International Affairs at Georgia Tech, stated at the that Trump has only ever mentioned China in relation to putting America first. Trump has tweeted that climate change is a hoax, created ‘by and for the Chinese’.

In this last debate, he sought to put down China at the earliest opportunity.  ‘Look at what China is doing to our country,’ he said in his opening statement. ‘They are using our country as a piggy bank to rebuild China.’ Chinese officials and the general population are understandably unimpressed by this open hostility. Trump continually uses the strength of the Chinese economy as a fear tactic, seeking to prove to voters that putting China in its place is a desirable thing, one which he would achieve.

Unfortunately, for those of us who work with China each day, it is clear that a weak China will not equate to a strong America. There is no zero-sum game to be played here. While the bilateral relationship has its fair share of challenges, the great majority of business people, including George Soros, advocate for a strategic partnership between the two. Not to mention, America currently relies on China for a continual supply of all the goods upon which modern life depends – from Apple computers to armchairs. A Trump presidency would create a great rift between the US government and the Chinese politburo, undermining years of diplomatic efforts. Such tension would inevitably extend to East Asia in general, forcing states to choose sides.

If the analysis that followed this debate is to be believed, we will narrowly avoid a Trump presidency and the devastating outcomes it might bring about. Nevertheless, the popularity of such a candidate will be remembered by China and may have lingering effects despite the outcome of the election. For those of us who work with Chinese manufacturers and suppliers, the next few months promise to be a testing time. 

The Future of Chinese Manufacturing

Economic data out this month is providing reassurance for those who trade with and manufacture consumer products in China. New data from the National Bureau of Statistics shows industrial output up 6.3% during August from a year earlier, rising from 6% in July. The data suggests government spending and strong property sales are helping to stabilize the economy, in turn making it an attractive place for foreign businesses to do business. The news came after a wobbly start to the year, in which government investment aimed to ‘jump start’ the economy seemed to be having limited effect. That it is now having a noticeable impact on key economic indicators demonstrates that policymakers’ efforts to reverse the slide in investment growth is succeeding.

There are certainly a number of issues currently facing the Chinese manufacturing industry. From a macroeconomic perspective, as China grows wealthier and wages rise, it simply becomes more expensive to manufacture there. For example, for textiles business for whom cost is the concern, emerging economies such as Vietnam and India are also attractive options for manufacturing. As China grows richer, however, so too does its base of skilled technical workers, making it a more attractive place to manufacture advanced and innovative technology products.

Another issue, gaining traction in the upcoming US election is the negative impact of excess capacities in Chinese industrial factories. Despite promising to curb excess capacity, the Chinese government continues to provide cash assistance and subsidies to steel-makers, coal miners and other factories. This has resulted in a concerning glut in the global market for industrial goods such as steel, aluminum and diesel, as well as tension amongst China and its trading partners.

At WeSource, we assist those looking to make and buy consumer goods – all types of products from furniture to electronics, accessories to air coolers. We are finding that those working in this industry are both busy and optimistic about the future. China continues to hold the competitive advantage in manufacturing, especially in large quantities, and our clients have benefited this year from the drop in the yuan. The new economic data out this month demonstrates to us that the current tax cuts and increased government spending are taking effect, marking a solid step towards greater economic stability. China will continue to be a dependable trading and manufacturing partner for the US, with technological advancements increasing the variety and quality of products available to source. 

What you need to know about the 7 Chinese holidays

Did you know that China has seven national holidays? Also, that the unofficial holiday period can span several weeks either side of the official date? This article summarizes the seven Chinese national holidays, with advice for how your business should approach each one. 

 

New Year’s Day:

In China, New Year’s Day is called yuán dàn and is different to Chinese New Year. Most businesses typically close from 31 December to 2 January. It is a good idea to send a greeting to your partner and clients, such as ‘新年快乐’ (xīn nián kuài lè, ‘Happy New Year’) or ‘元旦快乐’ (yuán dàn kuài lè, ‘Happy Yuan Dan’).

 

Chinese New Year:

Also called Spring Festival, Chinese New Year is the most important annual holiday with a 4,000 year history. Most Chinese citizens will try to return to their hometown (meaning the hometown of one’s grandfather, not necessarily the place one’s parents live) during this period. These family reunions place an incredible strain on public infrastructure. During the ‘chunyun’ travelling season lasting from January 16 to February 2 (40 days), there are typically 3.6 billion passenger movements, making it the largest human migration in the world. So while you may be anxious about the delivery of your products, spare a thought for your Chinese contacts enduring a trip home like this!

It is a good idea to send a hand-written card and gift to your Chinese contacts, timed to arrive at least 2 weeks before the official start of the holiday. This is because many senior members of a company may leave for vacation earlier.  All gifts must be either red in color or wrapped in red. Ideal greetings include ‘过年好’ (guò nián hǎo, ‘Happy getting past the old year!’), ‘恭贺新春’ (gōng hè xīn chūn, ‘Sincere congratulations on the new spring’), or ‘新年快乐’ (xīn nián kuài lè, or, ‘Happy New Year’).

In 2017, Year of the Rooster will begin on January 28, with most businesses officially closed from 27 January – 2 February. Much like the ‘silly season’ in the US, do not expect to accomplish much business in the 2 weeks either side of this period. Check with your suppliers well in advance to see how you will be affected and plan accordingly.

 

Qingming:

Qingming is a traditional holiday meaning ‘Tomb Sweeping Day’. Although it may sound somber, it is a chance for Chinese to remember their ancestors. Many Chinese people will take this opportunity to visit the graves of relatives to clean away leaves and dirt, or to head to the countryside to begin ushering in the Spring. As this is a festival associated with death, there is no need to send greetings or gifts. In 2017, Quinming will be celebrated on April 4.

 

May Day:

May Day or Láo Dòng Jié, also known as Labor Day or International Workers Day, is a modern holiday that was introduced by the post 1949 government of Chairman Mao. There is no need for special greetings or gifts. You may simply wish your contacts an enjoyable break. It is celebrated on 1 May, and in 2017 most businesses will close from 29 April – May 1.

 

Dragon Boat Festival:

Dragon Boat Festival was originally created to honor the ancient poet Qu Yuan. On this day, most Chinese people will eat 粽子 (zòng zi), a glutinous rice package wrapped in bamboo. It is a time to wish your associates in China happiness and prosperity for the remaining months of the year. It is celebrated on the 5th of the 5th lunar month. In 2017, this will be 30 May, with businesses closed from 27 – 30 May.

 

Mid-Autumn Day:

Mid-Autumn Day, or Zhōng Qiū, is celebrated on August 15th of the lunar calendar. It is the second-most important festival on the Chinese calendar and revolves around family. In less busy times, this festival was also an opportunity for families to gather together and eat moon-shaped cakes.  Indeed, one of the most popular greetings is阖家团圆 (hé jiā tuán yuán, ‘whole family reunited, round and full’).  However, now that so many Chinese work away from their hometowns, many will replace a trip home by simply eating mooncake. Therefore, you may find it easier to greet your contacts with中秋佳节快乐 (zhōng qiū jiā jié kuài lè, ‘Have a happy time during the pleasant Mid-Autumn Festival’).

You may find that, as with Chinese New Year, business slows down in the weeks leading up to and following this holiday. In 2017, Mid-Autumn Day will be on October 4, meaning it falls within the national holiday period.

 

National Day:

Chinese National Day commemorates the foundation of the People's Republic of China by Chairman Mao Zedung in 1949. National Day falls on October 1, with an official 3-day closure from 1 – 3 October. In reality, most businesses close for at least 7 days, known as the ‘golden week’. While you may hear lots of fireworks in major Chinese cities, most Chinese do not celebrate National Day in any personal way. Therefore, there is no need to send greetings or gifts.

As this holiday is not connected to family, many Chinese use this long break as a chance for personal and recreational travel, especially for overseas trips. You may therefore expect your contacts higher up the chain to be unavailable for some time during October. In 2016, businesses will close from 1 - 8 October. In 2017, expect most businesses to be closed from 1 – 7 October.

One thing to note is that after an official holiday, many Chinese will be required to work through the weekend to catch up on missed work. Don't be surprised if you receive emails from your suppliers over the weekend after a national holiday! 

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In summary, when your supplier or China business contact tells you they will be closed for an upcoming holiday, it is a good idea to know how to respond. Responding in a appropriate way demonstrates cultural awareness, as well as respect for the limited periods of rest we all enjoy. Just as it would be inappropriate to demand that an American respond to your email on December 25th, so too you risk appearing rude and insensitive if you demand replies to your emails in the middle of Chinese New Year.  

Also note that just as we might do in the US, it is common for employees to take a couple of days in personal leave to extend their vacations. This can mean the absence of your key contact for 5, 7, even 10 days! If your contact tells you they will be away, ask them who you should speak with in the case of an emergency. 

Why not take a moment now to add these holidays to your calendar? Not only will you be better prepared for holiday closures, but you can use each as a chance to demonstrate your cultural awareness, thereby strengthening ties with your Chinese contacts.