How will China’s consumer-driven economy unfold in the 14th FYP

Seven connected yet distinct consumer profiles that will dominate China’s domestic demand-driven high-quality economic growth. 

In brief

• Unlocking the full potential of the consumer market will be a critical component in China’s long-term outlook
• Convince private households that now is the time to enjoy life by spending more on material comforts
• Demands from China’s rising middle-class shape a consumer society that is distinct from the rest of the world

The 14th Five-Year Plan for National Economic and Social Development¹ (14FYP) clearly states that China will accelerate the establishment of “dual circulation” with the domestic market as the mainstay to start a new journey of building a modern socialist country. The coverage on domestic consumption in the 14FYP has taken on new significance. It has become much more specific in terms of not only reinforcing the role of domestic demand as a primary driver for China’s economic growth, but also the comprehensive upgrade of its quality in combination of progress in the digital economy and improvements in social welfare.

Specifically, the 14FYP noted that digital technology will reach every corner of social interactions and daily lives in China. From shopping, health care, education, entertainment, to daily travels, digital footprints will be considered an important asset in the development of third-party big data service industry, and that will lead to a comprehensive transformation in China’s industries.

Second, the 14FYP emphasized that in addition to generating further increase in the household income level, it will strive to deliver higher standard of living and greater sense of satisfaction to the populace. Meanwhile, it downplayed the significance of the annual GDP growth target in 2021-2025. Compared to the 13th Five-Year Plan that proposed an actual numerical target for economic growth, “high-quality, healthy, and reasonable economic growth” became the objective in the 14FYP.

The potential of China’s consumers

In 2010, most urban Chinese households had enough money to cover basic needs like food, clothes, and housing, with median disposable income per capita at around RMB21,000 per year. In 2020, the median urban disposable income has more than doubled to around RMB44,000 per year, and a lot of well-to-do households are now having ample funds for leisure like regularly eating out, beauty products, flat-screen TVs, and holiday travel. By 2024, the Development Research Center (DRC) of the State Council expects that the nation will have at least 560 million middle-income consumers².

Unleashing the spending power

However, there is still significant potential in China’s consumers that has yet to be unlocked. As a share of GDP, China’s private consumption expenditure is uniquely low by international standards. It reflects a persistent trend in China’s household savings rate that has been well-studied by academic researches³, with social precaution (insufficient social security protection) and birth control policy often attributed as some of its main drivers.

To fully unleash the potential of China’s consumer economy in the 14FYP, the focus should be to convince private households that now is the time to pursue better quality of life by upgrading their material comforts. The reform on the social safety net, after all, is accelerating⁴, and birth control policy has been all but relaxed, while the improvement of people’s livelihood has been a top policy priority. Specifically, we note that favorable policy, demographic and geographic factors will favor the rise of the new urbanites, the silver generation, and the small city big spenders who will shape and lead China’s consumer market.

FutureConsumer.Now and Future Consumer Index

In the face of their rising spending power, China’s consumers will reasonably expect better selection of products and services to cater to their evolving demands. It is up to the leaders in the business sector to anticipate the emerging expectations, reinvent themselves, and build the capabilities that future relevance will require.

Building upon the insights from FutureConsumer.Now, EY also created the Future Consumer Index (FCI)⁵ to understand and track emerging consumer behaviors and sentiments around the world. As a regular survey administered to over 10,000 respondents, it covers consumer behaviors, sentiments and intent since COVID. With more than 1,000 respondents from China that are predominantly educated, upper-middle to high-income and located top-tier cities in coastal areas, it can provide a unique perspective of the leaders in China’s consumerism.

Salient features of Chinese consumers

While our FCI respondents from across the world feel that the quality and healthfulness of their products will be highly valued in the long term, Chinese consumers stand out with higher expectation in service, product authenticity, and customization. They are also more enthusiastic on the deepening of digitalization within the consumer space, but have relatively lower demand in affordability, privacy, and choice. Given these patterns, we expect four personas will stand out in the future – the health conscious, the planet first, the experience everything, and the ascendant consumers.

We identified seven connected yet distinct consumer profiles that will shape the future of China’s consumer society.

The new urbanites: Urbanization will unlock the spending power of the new urbanites, with their improved living standards and disposable income, aspiration for upward social mobility, and the cities’ advanced digital infrastructure.

The silver generation: The sizeable first generation that rode the tide of China’s economic boom is retiring. At the peak of their saving cycles, many are just as willing and ready to spend on leisure and recreation as health care and exercises.

Small city big spenders: Skyrocketing home price and strong demand for purchase have squeezed the disposable income of those in the large coastal cities. With home purchase being a more attainable goal and lower cost of living, consumers in the smaller inland cities are becoming bigger spenders.

The health conscious: Even though China consumers are able to return to “normal life” quickly after the initial COVID outbreak, the psychological impact may last much longer. Many are willing to pay a premium for quality and healthy products while avoiding human contact.

Planet first: The Government’s ambitious commitment to carbon reduction is well-aligned with the consumers’ growing preference to spend with a higher purpose in mind. Their preferred brands are the ones that stay ahead of the Government's mandate to do good for the planet. 

Experience everything: China's tech-savvy consumers expect more compelling and personalized experiences from their preferred brands. To them, shopping becomes a social entertainment activity and with many exerpiences available virtually, rural consumers can also be trendsetters. 

The ascendant consumers: Consumers who were previously marginalized are shaping new relationship with brands with their growing economic power. They expect their evolving needs on service, convenience, and quality to be recognized, understood and satisfied at all times.

On each of these profiles, actionable triggers have been identified in order to tap into their business potential. With our experienced teams, successful consumer businesses can get ahead of consumers’ evolving expectations, and ready themselves for a new stage in China’s consumer society.

China’s (and the world’s) new retail age

The future starts here China is an enormous, high-growth consumer market that is already at the world’s forefront in terms

of digital adoption. Across China today, consumers are increasingly empowered by the country’s economic rise and the implementation of technologies that make life seamless. In 2020, 24.9% of retail transaction in China was done online⁶, making it the world’s largest online merchandize sales market⁷. With 855m avid digital consumers⁸ and the right policy mix behind it, the new retail age is only just beginning in China.

The world’s laboratory on consumer trends

But the vast market is not the only reason why every consumer-facing company needs to be doing business in the country. China’s consumers are spoilt for choices and their expectations, from technological innovation to customization and ultra-convenience, are very high. They will jump from one experience to the next as attention spans dwindle. Businesses will need to think carefully about how to set themselves apart from the crowd. Getting it wrong, and they could ruin their own brands or make themselves irrelevant.

The uncompromising attitudes of these new confident consumers will become an important driver of change, and that makes China a huge laboratory. From its e-commerce platforms, digital payment methods, online streaming personalities to its supply chain reinventions, many of the new behaviors, trends and business models that will redefine retail are emerging here today.