Updated 12 November 2013
Consumerism expands in both China and India
One of the reasons China and India did not experience the 2008-09 recession was because of expansion in consumer spending. After years of cajoling, the governments seem to have persuaded the public (or at least the affluent part) to spend more and save less. Chinese households save on average 26% of income and Indian households over 30%. In 2009, Chinese savings dropped to half at 12%.
Increasing affluence comes into play
As 300m of the Chinese population has been lifted from dire poverty to relative affluence in one generation, the average Chinese is extremely optimistic, dynamic and patriotic (three attitudes that made America great) with an emphatic ‘can do’ spirit, determined to leave the next generation even better of than one’s own. As many American visitors have commented, the ‘Chinese dream’ is bigger than the ‘American dream’ and they are more impatient to realise it. The Chinese consumer market was estimated at $1.7 trillion in 2009. Credit Suisse in China predicts it will rise to $16 trillion in 2010. By then China should have surpassed the US market. The downside of this increasing affluence is that whereas China used to be self-sufficient in many commodities including sya beans and corn. A problem for all as some of these are also sources of alternative fuels.
India’s upward drive is caused more by its demographics than by urbanisation and general increase in affluence, though these come into play as well. India has one of the youngest populations in the world with 50% under 25 and, like their Chinese counterparts, wants more, better and sooner. They are less interested in saving for tomorrow than their parents and more willing to take risks, and to spend. Nevertheless, savings here are well above western levels. In August 2011, the total private stockpile of gold in India is estimated to be 18,000 tonnes – more than twice the 8,100 tonnes held in Fort Knox by the Federal Reserve.
With the spread of Western culture including the commercialisation of Valentine’s Day and Mothering Sunday, the consumer is enticed to spend on these ‘celebrations’. An unlikely commercial success is Karuturi Global, a horticultural company in Bangalore the world’s biggest grower of roses; much of it exported, but with increasing domestic purchases for these imported Western celebrations! So successful has it been, that it is acquiring 370,000 hectares of land in Tanzania, 1% of the agricultural land and seeking to buy land in Senegal also.
In September 2010, India revised its ‘basket of goods – after 15 years – in calculating the RPI to include satellite TV in place of the traditional sari! This is in addition to replacing the dhoti by microwave ovens and so forth.
India still has some restrictive practices. For example, the UK food retailer Tesco has for eyars been trying to get entry. It nearly achieved that in 2011, but at the last minute the approval was not granted. Consequently, only 5% of Indi’a’s $400m retail market. The rest is run by millions of family-owned small businesses. And the market is estimated to double by 2015!
Cigarettes: Gallaher, the maker of Benson & Hedges and Silk Cut cigarettes, is about to start its long-awaited push into the tobacco market of China as its locally produced cigarettes go on sale there for the first time.
Food & drink: The first joint-venture company, NESTLÉ Shuangcheng Ltd., was established (Heilongjiang Province) in 1987. Coca Cola and Pepsi adverts are ubiquitous.
Health & beauty: L’Oréal is BIG in China; they also bought local firm who distributes cosmetics through 250,000 outlets! It has invested in research & development centres in both China and India. Apparently women in both countries like to appear whiter than the way they were born, and what counts for white face powder in the West is just not white enough. Also, Chinese faces are wrinkle free for much longer than Caucasian faces, but once wrinkles appear they occur at a faster rate. It also had to set up training schools. The Cultural Revolution created a generation gap in the tradition of make-up and hair styling – giving it an ideal opportunity to educate and sell at the same time. Chinese urban women spend 10 -15% of their salary on cosmetics and skin care, which adds up to $10bn a year and rising. Being China, there are some 4,000 cosmetic firms (c15% foreign owned) vying for that business. L’Oréal makes c$400m pa and rising.
In 2006/7, L’Oréal set up hairdressing training schools and salons in India.
Appliances: The first purchase of a newly employed urbanite after a cooker is probably a TV set, then perhaps an air-conditioner followed by a refrigerator (buying fresh food is still preferred to buying once a week, though habits are changing). Despite the speedy nature of Chinese cooking, microwave cookers are also on the increase. A sign that the Chinese consumer is also short of time. 130m units of household appliances are projected to be sold in 2010 for China to become lead market
Cars: Chinese consumers are now buying more cars than American counterparts. 4 million cars clog the roads of Beijing, where 12,000 new drivers’ licences are issued each week. The road improvement budget is $160bn this year. And the car industry resembles that of America before the General Motors consolidation of over a century ago. Vehicle sales in 2010 were partly stimulated by a “cash for clunkers” scheme not unlike that in the UK, except the incentives were much higher and the scheme lasted much longer. Some 100 plus car manufacturers compete, including pure indigenous makes to joint ventures to top marques such as Mercedes and BMW. DaimlerChrysler invested €1b in China in 2004 building Mercedes S-Class, and BMW the 7-Series in ShenYang a couple of years later. They tend not to bother with lower models!
Having become number 1, 2 or 3 for the top mass car brands such as Mercedes and BMW, China is now drawing in the top sports brands such as Porsche, Lamborghini, Maserati and Ferrari. They all aspire to make China their number 1 market in the next few years. A big difference between China and India (and possibly elsewhere) is that whereas globally 5% of Maserati owners are women, 30% in China are women. Admittedly, some of these may be gifts from men buyers to women who are registered as the owner, but Maserati believes that 90% of the women owners are entrepreneurs in their own right.
The sheer numbers in China makes the mind boggle. For instance 55% of private cars have yet to have new tyres. This will in 3 to 5 years pose a great opportunity to not only tyre makers, but would have created a shortage of rubber. Fortunately, Thailand has foreseen the opportunity and planted 128,000 acres of new rubber trees. They should be ready in 2020 when the tyres on the 200th million private car need replacing.
Luxury goods: apart from luxury cars, other luxury goods are in demand in a society well practised in conspicuous consumption. Vertu mobile phones, diamond encrusted costing up to $100,000 fly off the shelves. There are apparently some people willing to pay $150,000 for a Hermès Birkin handbag at a Louis Vuitton shop – twice the price on eBay. The point of the exercise is, of course, to be seen to be able to afford such a bag.
Advertising: Martin Sorrell (chairman, WPP) says advertising in China set to out-grow Japan and then US in next few years.
Tourism: Both Chinese and Indians of means are used to touring their own country. Any foreign visitor will vouch for this. Increasingly, both Chinese and Indians are travelling abroad, to the delight of tourist boards at favoured destination. In recent years, Indian tourists came to the UK in larger numbers than American, Japanese and Middle Eastern tourists and spent more per head (well maybe not compared to Arab oil magnates and their wives).
Britain, in particular London, has hired Mandarin speakers in its high end stores. Some are starting to accept China UnionPay credit cards. In 2011, an estimated £500m was spent by Chinese tourists in British stores during the summer sales, never mind hotels, restaurants, theatres and tourist attractions. A similar amount was estimated for the Christmas and New Year sales. There is an estimated increase of between 10 and 15% in 2012.