“The big spender in China, in years past and even more so today, is the state: private consumption as a percentage of gross domestic product has fallen from 60 per cent in 1968 to 36 per cent last year and could be as low as one-fifth in 2009 as the government ramps up capital investment.
In fact, the Chinese, who already have a world-beating savings rate of nearly 40 per cent of their income, tend to become more frugal when times are tough. As bank deposit rates decline, most of us spend more. The Chinese tend to stash away even greater sums to make up for the lost interest. The reason for this conservatism is the lack of a social safety net in China – citizens have to provide for their own medical care, old age and possible unemployment.
This makes them “penny pinching, ruthless, suspicious shoppers”, says Tom Doctoroff, north Asia director of advertising agency JWT and a writer on Chinese consumer trends. In a recession this behaviour only grows worse. “The downturn has made people keener on finding the cheapest deal,” says Yuval Atsmon, an associate principal in McKinsey’s Shanghai office. Even when they can easily afford it, buying a PC typically involves six visits to a store, and more often than not, customers will wait six months before making their decision after consulting blogs, online comparison sites and – the most important source of information in China – friends and family. Sales of copycat mobile phones, with all the functions of top models but a lower price, have soared from 17 million units in 2006 to 62 million units last year.
Brand consciousness is high, at least in the big cities, but brand loyalty is much lower than in the west. A price cut or good in-store promotion can often sway shoppers. And for cultural reasons, appealing to an individual’s taste or personal comfort typically doesn’t work, Doctoroff points out. A purchase either has to publicly signal status or wealth, like a flashy car does. Or provide a practical benefit: the latest craze in China is chocolate with added calcium, eaten not for pleasure but for the health benefits. The growing appeal of diamonds to women is not based on romance, but as a financial signal of a man’s commitment. Trust is another key issue in a country where so many consumer products are faked. Chinese mothers, for example, will pay 30 per cent more for safe baby milk – and this should favour foreign brands.
But foreign retailers and manufacturers have to cope with vast regional differences in demographics, language and culture that make it hard to plan a single marketing strategy – indeed treating China like a single country is usually a mistake. Natives of Zhejiang on the east coast like “toilet roll as rough as sandpaper”, the former head of Wal-Mart China liked to observe, a penchant thankfully absent elsewhere. Atsmon points out that cities even an hour apart can be entirely different: in southern Shenzhen, more than four-fifths of the population consists of migrant workers, mostly under the age of 35, who speak Mandarin and drink in bars. In nearby Guangzhou, migrants number just over a quarter, more people are older, enjoy watching Cantonese TV and go out to restaurants to drink with family members. Adequately addressing such niches requires an army of local suppliers, costly infrastructure and several layers of wholesalers and intermediaries. Even then, success may remain as elusive as it always has been: “No matter what you may be selling, your business in China should be enormous, if the Chinese who should buy your goods would only do so,” lamented Carl Crow, an advertising executive in Shanghai and author of the original book on how to sell to the Chinese … more than 70 years ago.”