China’s future may be buoyant, but its narrative remains heavy with clichés. From the “awakening of the sleeping dragon” to the “opportunities of the Middle Kingdom”, Western commentators are fixated with the potential stemming from one the world’s fastest growing economies. The reality is quite different. For all the rhetoric over new economies and old; East versus West; and developing chasing the developed, the fact is that China is no longer an emerging market. China has, for the most part, emerged.
For brands, the debate about China’s economic status is redundant. Many of Shanghai’s most vibrant consumer districts are now on a par with the very best that Tokyo, New York and London has to offer. And with the world’s second largest economy tag neatly stitched into its stylish coat, the concept of it being “an emerging market” is verging on the offensive for many Chinese.
That’s important. And it probably best defines why global brands need to take a different approach to leveraging commercial opportunity in China. Perceived Western arrogance, whether of its media or the business community, does little to encourage a collaborative approach to brand expansion. So if China is not “developed” or “developing”, what is it? And what does that mean for marketers and communicators?
Deng Xiaoping, whose reforms were the catalyst for China’s current period of rapid growth, said that for China to develop, “some must get rich first”. More than a few followed his advice and became extremely wealthy, with over three million millionaires in China today .
But the perception of China as a hulking, monolithic growth machine is overly simplistic. Instead, it is a nation split between the super-rich, an emerging urban class and a rural migrant underclass. Against this background, China is trying to transition its economy from based on exports and fixed asset investment to one driven by domestic consumption.
For multinationals, understanding these schisms – and the opportunities and challenges that stem from them – is absolutely critical to succeeding in China.
China’s urbanites have consumed voraciously. China’s National Bureau of Statistics recently confirmed that retail sales jumped 14.3% in 2012, and a further doubling of real consumption is projected to reach US$4.8 trillion by 2020. That would make China the second-largest consumer market in the world.
China has become the backdrop and soundtrack for some of the world’s biggest product launches too. Multinationals have increasingly opted to invest global marketing dollars in China by hosting massive launch events in cities like Beijing, Shanghai and Guangzhou at the expense of the traditional North American and European venues.
That makes sense. As the competition for China’s nouveau riche intensifies, some global brands have grasped the fact that the Chinese do not just expect access to the latest technical developments or branded products – they expect to be the first to consume them, too.
Elsewhere, China consumer habits continue to surprise Western observers. For example, whilst affluent city-dwellers continue to flex their consumption muscles, they still save over 30% of their income. That compares to 2.7% in the UK. And yet this unique approach to personal financial planning has little to do with cultural discipline and a lot to do with an overwhelming sense of insecurity about the future.
Inadequate health coverage is a case in point, with many common ailments that might hospitalise someone, not covered under insurance terms. The macro-result for China is that a strong saving ethic has a material impact of domestic consumption and sustainable development. That’s not something that the West is used to.
The Chinese government is aware of the problem and has acted. It has already ramped up spending on healthcare services in an effort to encourage Chinese consumers to re-direct their savings to the benefit of domestic consumption. It has also boosted minimum wages and expanded household income – a key tenet of the 12th Five-Year Plan to increase income by 7% annually (disposable income for urban populations and net income for rural populations).
The knock-on affect of such government action is profound. It redirects capital into the economy which opens up a whole new realm of market potential for those in areas including health insurance, pharmaceuticals and age-care.
Like any country, it will be many years before China can get close to an effective distribution of the wealth seen in its major cities to more rural areas of the community. But it’s a utopian aspiration that the
Chinese government will make every effort to reach.
Therein lies a significant opportunity for global brands – and one of the most powerful means of benefiting from it is by ensuring they actively demonstrate a commercial and moral urgency in helping China solve its problems, whether boosting local consumption or providing access to healthcare.
Gone are the days when multinationals could get away with simply showing up. A corporate reputation built around understanding, insight, relevance and commitment goes a long way to effectively engage Chinese consumers. For those organisations that build brands around the needs of a developed market, rather than one that is developing, the future looks very bright indeed.
Darren Burns is managing director, China, at Weber Shandwick