Rising education, real estate and health care spending weigh heavy on consumer sentiment

Chinese consumer confidence has hit a 10-year high, buoyed by rising disposable income, says McKinsey, although times are expected to toughen

PUBLISHED : Monday, 27 November, 2017, 6:46pm
UPDATED : Monday, 27 November, 2017, 11:07pm

Chinese consumer confidence has hit a 10-year high, buoyed by rising disposable income – but the increasing cost of education, real estate and health care continue to remain a tightening yoke around the necks of many young residents in the country’s larger cities, longer term, according to a new hard-hitting study from global business consultancy McKinsey.

The good news is that 80 per cent of respondents expect their household incomes to increase considerably in the next five years.

The National Bureau of Statistics’ consumer confidence index showed the Chinese consumer confidence index climbed to 115 in August, 2017, exceeding the level it reached in 2007, just before the global financial crisis. The index jumped from a low of 100 in the spring of 2016.

Income growth, however, has in fact slowed in China, from a year-on-year rise of 10.1 per cent in 2012, to 6.3 per cent in 2016.

And Daniel Zipser, a senior partner and head of McKinsey’s consumer and retail practices in China, said despite the confidence that more money will still be coming in, added spending on education, housing and health care expenses still remain hefty financial burdens for Chinese consumers, and that is likely to hit future consumer confidence.

Chinese households now report having carry levels of debt, with the average household forking out half their income on consumer finance and mortgages, to support their lifestyles.

The McKinsey report identifies China’s post-90s generation, or youngsters who were born after 1990, as holding the key to its future prosperity, becoming the major driver for China’s consumer spending.

But Luan Lan, an associate partner with McKinsey, says the pressure now being put on brands to come up with innovative ways of getting their message across to that group will grow too.

“Companies that think carefully about their product and whether it will resonate with these segments based on their beliefs and attitudes, will have an advantage.”

Once again this year, the Singles’ Day shopping spree on November 11 underlined China’s consumer confidence remains pretty strong.

China may hold the future of retailing as Singles’ Day marries online and offline stores

Alibaba, owner of the South China Morning Post, reported sales of 168.2 billion yuan (US$25.5 billion) during the shopping festival, a jump of 39.4 per cent from a year ago.

But Chinese consumers are more health-conscious than ever before, McKinsey’s survey of 10,000 consumers aged between 18 and 65 showed.

About 65 per cent said they want to live a healthier life, while 40 per cent said they exercise regularly.

“Although China is still in the nascent stage of its health awareness journey, forward-thinking companies have an opportunity to shape perceptions by partnering or aligning with trade associations, education institutions and regulatory bodies,” said Felix Poh, another McKinsey partner. “Companies in the health and fitness space must think beyond the product and create a broader offering.”