- In the past decade China has become the workshop for
the world, its low-cost labour force toiling in factories to churn out
cheap goods destined for western consumers. Many of the raw materials needed
to feed this industrial juggernaut have to be imported from other countries
and today China is the biggest driver of markets in commodities such as
copper, oil and iron ore.
-
- But as well as a multitude of low-paid factory workers,
the country's manufacturing boom has also created a large and growing number
of baofahu - literally, the "suddenly wealthy". Their shopping
habits and changing tastes are reshaping global trade flows at the other
end of the production chain.
-
- The rise of the Chinese consumer has provided unprecedented
opportunities for enterprising global corporations and many now look to
the country as their biggest growth market for the indefinite future. And
while China's nouveaux riches share many of the tastes of their counterparts
in any other part of the world, there are also a number of customs and
cultural legacies that have created new markets for products that have
little value elsewhere. This has encouraged global companies to invest
an increasing amount of time and money in understanding what makes the
Chinese customer special and how best to market or customise products.
-
- In some cases, traditional Chinese tastes, combined with
the explosion in wealth during the past decade, have created a rapacious
and unsustainable call for the body parts of endangered species. The manufacture
of traditional delicacies, ornaments and medicinal ingredients has helped
to cut swathes through populations of sharks, elephants, seahorses and
other species across the world - and that demand is only expected to increase.
-
- Big cars, flashy cars
-
- In the US, cars need giant cup-holders, but in China,
it's chauffeurs that are de rigueur. So when Porsche recently decided to
launch a four-door sedan in the midst of financial Armageddon, it chose
to do so in China - perhaps the last place on earth where anyone still
has RMB2.5m (£200,000) to spend on a chauffeur-driven sports car.
-
- At the Shanghai auto show in April, the Porsche Panamera
- which offers the ample legroom required by China's back-seat-riding bosses
- premiered alongside the Geely GE, otherwise known as the Baby Rolls-Royce
(much to the displeasure of the real Rolls-Royce). Then came news that
China plans to buy Hummer and make it greener. China's love affair with
big, flashy autos is clearly just beginning.
-
- The newly wealthy everywhere love to flaunt their money,
but China's rich are even more shameless than most: cars are not a means
of locomotion for the affluent Chinese, they are a symbol of success, status
and the naked power of the internal combustion engine over the bicycle
or pedestrian.
-
- According to Friedhelm Engler, director of design for
GM's Shanghai-based Pan Asia Technical Automotive Center, cars in China
are all about "face". He says the bulky, "three-box"
shape that is still overwhelmingly popular is deeply embedded culturally
in a country where the rich traditionally rode in palanquins. To western
eyes, that makes many Chinese cars look old-fashioned, especially on the
futuristic streets of Shanghai, with its space-age skyscrapers. And parking
such cars - not to mention parking a "Baby Rolls" - is a nightmare
in the city's congested, narrow streets.
-
- China needs smaller cars, and some younger consumers
are leaning toward hatchbacks; but in a country where grandpa or dad is
often footing the bill, four doors still often win out over five (not least
because grandpa or dad may not know how to drive, so they rely on the younger
generation to squire them around at weekends in the three-box). This is
a world where the young can start their motoring life with a Buick, not
a 2CV or Beetle; Buicks are more popular in China than they have been in
the US for decades.
-
- But western car manufacturers are betting that things
will change, as China's budding love affair with the automobile matures.
The country is on track to become the world's largest auto market this
year - several years ahead of expectation - and car styles could be transformed
at the speed of light. "Chinese consumers are used to moving quickly,
from no TV, to a flatscreen," says Engler. Their auto style may be
dowdy today - but in China, tomorrow is always just around the corner.
-
- Gold
-
- China loves gold in all its forms: as a reserve currency,
jewellery, an investment - even gold that is not real at all, or "virtual
gold", the internet commodity used as currency in online games such
as World of Warcraft. The Chinese government is trying to crack down on
trade in virtual gold, which is "farmed" by online gamers in
China and sold to online gamers in the first world.
-
- But when it comes to the real stuff - gold jewellery
and gold bullion, for either adornment or investment - trade in China has
risen sharply. Beijing recently revealed that it had been secretly buying
gold for years in order to diversify its foreign reserves, and had almost
doubled its bullion holdings. But they are not the only ones: the rising
tide of wealth among middle-class Chinese has made China the second-largest
gold jewellery market in the world since 2007, behind only India. Sales
of gold and silver jewellery in China rose by an astounding 28.7 per cent
in May year on year - proof, if any more were needed, that Chinese consumers
have certainly not stopped spending money during the financial crisis.
Total gold demand in China last year was nearly 400 tonnes, up by 21 per
cent from 2007.
-
- But Chinese people like their gold purer than their western
counterparts: 24 carat, rather than 18 carat. The reasons for that, says
Shi Heqing, gold analyst at Beijing Antaike Information, are partly historical:
"Chinese people have gone through several wars in the last century,
and the memory of those is still fresh, so they like secure ways of keeping
their money. In the west, people seem to use gold more for decoration or
beautification."
-
- The recent rollercoaster ride in the mainland stock market
- which at one point last year had fallen by 70 per cent from its 2007
height, but has since crawled back to half the peak level - has also prompted
more investment interest in gold in bullion form, gold market analysts
say.
-
- Mr Yu, a 55-year-old antiques trader in Shanghai who
declined to give his first name, says he bought 500g of gold in 2007 and
increased his holding to 2,000g at the end of last year. "I know people
who are still buying stocks at this moment . but gold may be better for
people my age who are more risk-averse."
-
- Or as Shaun Rein, managing director of China Market Research
in Shanghai, puts it: "In China, the banking system has only recently
become stable. Chinese people like gold: you can always melt it down and
it's easy to carry."
-
- Barbie
-
- No one knows more about shopping than the women in the
Shanghai typing pool: all those one-child babies have grown up into over-indulged
20-somethings with office jobs and 100 per cent disposable income. Their
parents or grandparents pay for rent, food, healthcare and every other
human need; all the rest goes on clothes, shoes, make-up and . Barbie?
-
- Mattel is banking on Shanghai's girlie-girls to revive
its flagging fortunes. The biggest Barbie store in the world recently opened
on the city's Huai Hai Zhong Lu shopping street, where all six floors are
infused with the spirit of that 1960s model of female perfection, the blonde
and cinch-waisted doll whose brand must rank as one of the greatest successes
in the history of world marketing.
-
- But in China, Mattel is breaking that brand mould in
a big way: Barbie is supposed to transform herself from a doll into a lifestyle.
Nearly a whole floor of the store is devoted to Barbie clothing in grown-up
sizes - exorbitantly priced sequined tops that my American eight- and nine-year-old
girls would not be caught dead in because Barbie (to them) is a little
kid thing. But Shaun Rein of China Market Research says "cute sexy"
is what the typing pool wants, and judging from the huge popularity of
the Hello Kitty character in that age group, it might just work.
-
- Jinky Gu, spokeswoman for the Shanghai store, has another
perspective altogether. "Chinese parents won't stop investing in their
children's education even during the economic crisis." The notion
that Barbie is an educational toy might horrify the feminists among us,
but it just might work among the stiletto-heeled Shanghainese. It would
not be the first time that a jaded western brand got a new lease of life
in China.
-
- Spirits and fine wine
-
- Shanghai White is the latest product offering from Diageo,
the UK drinks business behind such brands as Johnnie Walker and Guinness,
and its launch this summer gave the world a glimpse of how the tastes of
China's new rich are changing the liquor landscape.
-
- Shanghai White is being marketed as premium vodka but
it is produced in a venture with a Chinese baijiu distillery, combining
the distilling process of both vodka and baijiu. The "but" in
there is because baijiu is the national firewater in China, with a taste
sometimes described as a mixture of tequila and dirt.
-
- Of the roughly five billion litres of spirits consumed
every year in China, the vast majority is baijiu; the combined consumption
of all foreign spirits is estimated at less than 1 per cent of the total.
The allure of such a large market has convinced Diageo that it needs to
adjust its product line.
-
- In the wine market, meanwhile, bottles of Château
Lafite and Louis XIII are indispensable accoutrements for display in the
gleaming new mansions of China's super-rich, although such badges of wealth
are more likely to be seen as investments. The cachet of ordering an expensive
bottle also still far outweighs the pleasure derived from drinking it,
and Chinese nightclubs are filled with wealthy people ordering top-shelf
cognac then mixing it with gallons of sweet, green-tea-flavoured soft drinks.
-
- Only around 5 per cent of grape wine consumed in China
is currently imported but this is changing and at numerous recent European
wine auctions the winning bidder has been Chinese. While European winemakers
have not yet contemplated changing their products to suit Chinese tastes,
the marketing strategies of wine dealers are already shifting eastward.
-
- Ivory
-
- For more than 7,000 years, Chinese artisans have been
crafting elephant ivory. Favoured by the Imperial household as far back
as the Qing dynasty (1680), ivory has an illustrious reputation and an
association with the wealthy and elite. But in 1989, the trading of ivory
was banned worldwide through the Convention on International Trade in Endangered
Species (Cites), after more than half of Africa's 1.3 million elephants
were poached in a single decade. And yet, with a carving trade established
in antiquity and a burgeoning middle class who, for the first time, can
afford to buy ivory, China remains its biggest importer.
-
- As Asian elephant herds dwindle, African elephants have
become the only source of ivory. In late 2008, Cites authorities allowed
China to bid with Japan for tusks from official stockpiles - consisting
of ivory collected from elephants that had died a natural death - in four
southern African countries. In an open declaration of a continuing demand,
12 Chinese traders bought 62 tonnes at an average price of $144 per kilo.
Since this legal purchase, more than 11 tonnes of illegal African ivory
have been impounded en route to China.
-
- Elephant poaching largely takes place in central Africa,
where poverty and political instability are rife. Chronic unemployment,
the availability of firearms and corruption all facilitate the illegal
ivory trade. These regions are also home to unregulated domestic ivory
markets, where carved items are bought and sold. According to ivory expert
Esmond Martin, the majority of buyers are Chinese. In a scramble for Africa's
minerals and resources, the continent has seen a recent influx of Chinese
workers - a presence that is visibly reflected in the illegal retailing
of ivory. On a recent trip to Addis Ababa, Ethiopia, Martin recorded 1,433
items of ivory openly displayed in the city's main streets and central
market. Among these were 149 pairs of freshly carved ivory chopsticks,
selling for $16 each - in sharp contrast to a Chinese retail price of $139
- and signature stamps and jewellery. All of these items were small enough
to potentially smuggle through customs.
-
- Martin had previously estimated that 4,900 to 12,000
elephants from central Africa were killed each year to supply tusks to
the craftsmen of Africa, China and Thailand. Conservationists are deeply
concerned. According to Barbara Maas, CEO of Care for the Wild International:
"With the number of Chinese nationals resident in Africa rising, and
poaching on the increase, the frontline between supply and demand for ivory
is now perilously close, with a disastrous outcome for elephants."
-
- Dairy
-
- The Chinese have become the second-biggest consumers
of milk globally, after Indians. Demand has been helped by Beijing bombarding
the populace with health messages about the benefits of dairy, by urbanites
adopting more western diets and by rising incomes. Dairy consumption in
China has doubled since 2000, and reached some 30 million tonnes in 2007,
according to Rabobank, the food- and agriculture-focused bank.
-
- International dairy producers got a further boost last
year in the form of China's milk and infant formula contamination scare,
which led to two death sentences for men involved in deliberately tainting
the country's milk supply with the chemical melamine. "China's milk
powder imports have more than doubled since the melamine crisis,"
says Tim Hunt, senior dairy analyst for Rabobank. "It played a huge
role in shoring up market prices for internationally traded products in
the first half of 2009."
-
- Nevertheless, at just 22kg per head each year, China's
dairy consumption falls well short of wealthier Asian countries such as
Japan (where people eat some 75kg of milk, cheese, ice cream and yoghurt
each year) and is piddling next to European Union residents, who consume
223kg each year. Still, foreign dairy groups see potential in the Chinese
market. Although consumption fell in the wake of the melamine scare, it
is expected to return close to pre-crisis levels by the end of the year.
-
- Meanwhile, MilkLink, the UK dairy co-operative, this
year became the first British cheese maker to export Stilton to China,
targeting urban Chinese as well as western expats. The company's cheeses,
which will soon include English cheddar, are being sold in supermarkets
along the country's east coast, including branches of Tesco and Wal-Mart.
Simon Mercer, head of export at The Cheese Company, part of MilkLink, claims
natural cheeses will be the next big growth story in China's dairy sector,
a forecast backed up by research group Zenith International. It says cheese
consumption, currently less than 4 per cent of the country's dairy market,
will rise alongside the expansion of fast food chains such as Pizza Hut
and McDonald's.
-
- As the dairy sector grows, Mercer forecasts China will
"suck in" imports, but warns that the UK - where milk production
is in decline -is not in a position to meet demand.
-
- Dried seahorses
-
- The aphrodisiac counter is always the most arresting
section in the menageries that are Chinese medicine shops. Among the eyes
of newts and toes of frogs are mounds of dried seahorses. In traditional
Chinese medicine, consuming seahorses is thought to be beneficial for human
kidneys, improving memory, reducing swelling, helping women give birth,
treating arthritis and even curing breast cancer. But the most important
function of the humble hippocampus is the treatment of impotence. Maybe
it has something to do with the fact that seahorses are the only known
vertebrate species for which males rather than females give birth. Or maybe
it's just because they are so exotic.
-
- For most of the past 1,000 years, only the richest Chinese
patients could afford to include seahorses in their love potions. But with
industrialisation, rapacious modern fishing techniques and China's economic
renaissance, dried seahorses have become widely available and are even
sold pre-packaged by the dozen in supermarkets across the country.
-
- Chinese consumers demand up to 250 tonnes of dried seahorses
annually, but populations in China's own territorial waters have been so
depleted that only 10-20 tonnes a year can be sourced domestically. The
remainder is imported from places such as Vietnam, the Philippines, India
and Africa. And because dried seahorses weigh so little, 250 tonnes is
equivalent to tens of millions of seahorses killed every year for Chinese
aphrodisiacs - figures so enormous that even some in the Chinese medicine
industry have started to voice concern that this precious ingredient will
soon be fished into extinction.
-
- The obvious answer? Farming seahorses. But attempts to
do so on a commercial scale have so far had little success.
-
- "Penny pinching, ruthless, suspicious shoppers"
-
- Hail the Chinese consumer, putative saviour of the global
economy, writes Sameena Ahmad. China is still growing, at an enviable 8
per cent clip, and within that retail sales are rising by 15 per cent and
more each year. The country now boasts more millionaires than the UK and
glossy malls to serve them are springing up even in tawdry third- and fourth-tier
cities. Parched of profits at home, a growing number of multinational corporations
are betting on China's billion-strong army of shoppers to bail them out
and the rest of the world.
-
- But in order to sell successfully to the Chinese, you
have to understand them - and too many international companies (still)
don't. While the country is growing richer rapidly, the absolute numbers
remain relatively small. Total consumer spending in China reached $1,700bn
in 2007, according to the most recent figures available, compared with
$12,000bn in the US. In new research on the Chinese consumer to be published
next month, McKinsey, the management consultancy, classifies just two million
households out of a population of 1.3 billion as "wealthy" and
that is based on fairly modest annual earnings of more than $30,000. The
mass middle class is certainly growing and numbers some 70 million urban
households, but these still earn just $5,000-$10,000 a year. That buys
western shampoo, Ikea furniture and a television, but not many cars or
diamonds.
-
- The current healthy growth in retail sales is also not
as good as it looks. Government purchases at retail stores are included
in the figures and in many cities, including Beijing, the government has
also been helping indirectly by handing out vouchers to finance purchases
of anything from computers to weddings. 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.
-
- Sameena Ahmad is a business writer for The Economist
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