What slowdown? Chinese spending more on luxury items

HONG KONG • China's consumers are ignoring the bears.

Consultancy McKinsey & Co is tipping that China's shoppers will increase their spending by 10 per cent per year until the end of the decade as incomes rise. Some 55 per cent of consumers expect a significant wage increase over the next five years.

It is not just staple goods that will be filling the shopping trolleys. Consumers are spending more on luxury items like spa visits, travel and entertainment.

The shift is just another sign of China's economy changing from one that is fuelled by heavy industry and exports towards one where consumers and services drive growth.

Here is another sign of the burgeoning market: Chinese consumers are adopting new products, services and retail experiences at rates unseen in developed markets.

Mobile payment in China went from zero in 2011 to 25 per cent of the population last year.

"Gone are the days of indiscriminate spending on products," according to McKinsey. "The focus is shifting to purchasing more premium products, and living a more balanced, healthy and family-centric life."

China's leaders have prioritised economic growth of between 6.5 per cent and 7 per cent this year, and have promised to ensure the economy, which grew by its slowest in 25 years last year, will avoid a hard landing. While China's retail sales slowed in the first two months of the year, they remain in the double-digit growth range.

Annual sales of cinema tickets could overtake the United States as early as next year, and outbound tourist trips are on course to reach 200 million by 2020, according to brokerage and investment group CLSA. Still, for foreign competitors hoping to capture greater market share, the outlook is mixed.

While foreign brands dominate the premium segment, local companies are increasing their market share in the mass segment of the market. "While scale, speed and simplicity proved advantageous during the past 15 to 20 years, the changing shape of Chinese consumption is set to topple some giants of the past, and elevate new champions," McKinsey said.

McKinsey surveyed 10,000 shoppers, aged between 18 and 65, in 44 cities across China for the report.

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A version of this article appeared in the print edition of The Straits Times on March 22, 2016, with the headline 'What slowdown? Chinese spending more on luxury items'. Print Edition | Subscribe