The rise of the big spenders of China

The Chinese buy more and travel more, and brands are going out of their way to woo Chinese shoppers, both at home and abroad

Neelima Mahajan

[Photograph by Ale Hidalgo under Creative Commons]

Wang Chen, the IT guy in office, is one of my favourite people here. He is boisterous, funny and can brighten up even the dullest possible work day. And he is the guy who fixes my computer. Wang Chen often drops by to chat with me and the other foreigners here on some pretext or the other, maybe because it is a good way for him to practice English.

And so when he came a couple of days back, I was surprised to see him frowning. As is customary, at least once every winter, Beijing turns into Greyjing for some days, with the PM2.5 levels shooting off the pollution measurement charts. So we were at 600 or some such absurd level that day, when Wang Chen looked outside and sighed. He had finally had enough of Beijing’s putrid air, he said.

Then he brightened up and declared: “Thailand! I love Thailand.”

I struggled to make the connection between the fetid air outside, his frown and Thailand. “I have been there thrice,” said Wang Chen, smiling by now. I stared at him puzzled.

“I am buying a villa in Koh Samui,” said Wang Chen. “When I retire, I will go and live there.”

I was stumped. The villa, he says, can be bought for $400,000. The building Wang Chen’s house in Beijing is in is set for demolition sometime soon. He is counting on using the compensation money to fulfil his dreams of retiring and moving to a beachside villa in Koh Samui. Till the time he retires (which I am sure is a good 20 years away), Wang Chen plans to list his villa on Airbnb and make some money off it.

It’s been four years since I came to China and one of the things that I am still wrapping my head around is how the Chinese—irrespective of income levels—love the good things in life, like Wang Chen and his love for Koh Samui. When I came here in 2012, I had a Nokia phone. Everyone around me, including the receptionist, had the latest iPhone. By the time I upgraded to an iPhone, everyone had moved on to Samsung because that was in at that time. On my first real vacation after coming to China, I went to Cambodia and thought I had an exotic holiday. Everyone else in my office—irrespective of managerial level—had vacationed in a first world country.

Discretionary spending is on the rise in China. As Jeffrey Towson, managing partner of Towson Capital, and Jonathan Woetzel, director in McKinsey’s Shanghai office, write in their book The One Hour China Consumer Book: Five Short Stories That Explain the Brutal Fight for One Billion Chinese Consumers: “…people seem to have an endless appetite for everything from entertainment to skiing to caffe lattes. Chinese citizens are now moving beyond being able to only afford the basics of life…. Growth in spending on annual discretionary categories in China is forecast to exceed 7 percent between 2010 and 2020, and growth of 6 to 7 percent annually is expected in a second category of ‘seminecessities.’ Both of these categories are growing faster than spending on actual necessities, which are expected to grow around 5 percent a year, about the same as expected GDP growth.”

While I don’t have data to prove this, based on my interactions with people around me I sense that the younger Chinese, even those in the middle class, are living a relatively free life, unencumbered for most part by the shackles of responsibility and middle-class struggles of survival. They don’t save much—definitely not as much as Indians do. They have big aspirations. China’s economic progress over the last 30 years has helped them rise above day-to-day survival, something that their parents or grandparents had to struggle with. Also, smaller families mean fewer responsibilities—and family wealth is now distributed among a smaller set of people.

This means that the Chinese buy more and travel more. Two year ago, a hotel bell boy in Chengdu told me that he was travelling to India during Chinese New Year to enjoy the sand dunes of Rajasthan and see the Taj Mahal. I couldn’t imagine a bell boy at a similar hotel in Delhi thinking of vacationing abroad. A report from Fung Business Intelligence Centre and China Luxury Advisors predicts that China’s outbound traveller numbers will grow to 234 million passengers by 2020, up from more than 100 million in 2014. The same report says that overseas spending by Chinese tourists will rise by 23% this year to $229 billion, and it will more than double by 2020 to $422 billion.

Whichever tourist destination you visit in the world, you’ll see a Chinese tour guide holding a little flag with a legion of Chinese tourists sporting identical caps following him. Two years ago, my husband’s office gifted his team a vacation in Korea and we unwittingly became part of a similar tour group. The only things we brought back with us were Korean handicrafts. The rest of the group laughed at us: they had suitcases full of cosmetics, Balenciaga bags, Chanel perfumes and Burberry scarves.

As consumerism in China booms, brands are going out of their way to woo Chinese shoppers, both at home and outside. It’s not uncommon to see, say, three Rolex stores within close proximity to each other. Brands often customize their offerings for China. Swatch, for instance, brings out limited edition watches on Chinese New Year: it has done watches for the year of the snake, year of the dragon and year of the horse. Burberry created a limited edition scarf with the Chinese character for prosperity, which unfortunately didn’t please Chinese customers.

To cater to these needs, more recently, Alibaba launched Tmall Global, an e-commerce site that brings global brands from 25 countries to Chinese customers. Among other things, Tmall Global sells brands like Zara, Nine West, Estee Lauder, Lancome, Bose and merchandise from Macy’s and Sainsbury’s.

Brands are also trying hard to woo Chinese consumers outside China. Harrods, for instance, has employed Mandarin-speaking staff specially for Chinese tourists. Hotel chains like Hilton have special programmes to train staff in how to cater to Chinese guests.

For Chinese consumers, the aspirations are the same irrespective of income levels: to “trade up” and improve their social standing. As Towson and Woetzel write: “Many Chinese, like their Western counterparts, judge themselves and others by what they buy.” Or, I would add, where they go. Last year, a Chinese friend’s boyfriend proposed to her. She wasn’t very happy with the proposal, and refused to marry him unless he took her to Greece and proposed to her there. The optics, she felt, had to be perfect.

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About the author

Neelima Mahajan
Neelima Mahajan

Senior Journalist

Beijing

When I landed in Beijing in 2012, I gave myself six months to either survive China or let it overwhelm me. I hadn’t been here before, yet I jumped at the opportunity to head the management publication of a leading Chinese business school with decidedly global ambitions. I was, after all, intrigued by the question: "What makes Chinese companies tick?"

Settling in wasn't easy with challenges ranging from language and food to biting cold winters and Beijing's infamous smog.

Before I knew it, the six months had become three years. While my decade-long experience in India, with publications like Businessworld, The Times of India and Forbes India, familiarized me with how Indian companies behave and view opportunity, my China stint gave me a completely different worldview. If anything, these three years here have challenged my preconceived notions about the Middle Kingdom.

For instance, the popular perception outside of China is that the state is dominant in the business sector here. I found, much to my surprise, that it is not true. If anything, China’s growth miracle owes its success to private enterprises. And Chinese entrepreneurs go through the same trials and travails as their counterparts elsewhere. So what makes them so successful? How is it that Alibaba’s Jack Ma has built a $251 billion enterprise in just 15 years? How did Pony Ma at Tencent lead his company to such a mammoth scale? I can’t say with certainty that I have fully cracked that question yet, but in my observations so far, a couple of things stand out: thinking big, relentless drive, tenacity , a difference in the way they view and crack opportunities, and loads and loads of spunk.

The other popular notion about China is that Chinese companies are simply clones of their Western counterparts. Once again, it is not entirely true. I have visited both the Google headquarters in Silicon Valley and Baidu’s headquarters in Beijing, and I can say with certainty that Baidu is not a copy of Google.

A third notion that I have seen crumble before my eyes is that China is all about cheap, low-quality products. While I don’t deny that there are cheap, fake products proliferating the market, I would urge you to look at the other side: Chinese companies that are leading the game in innovation. Walk into the innovation center of a Lenovo or a Haier, and you’ll know what I am talking about.

I have an avid interest in multinational company strategy as well as the so-called 'emerging giants'. It is fascinating to see how MNCs are navigating their way around this hard-to-ignore country and also how homegrown giants like Lenovo, Huawei, Alibaba, Baidu and Haier are approaching global markets.

I also have a keen interest in management thought. I have interviewed thought leaders like C.K. Prahalad, Michael Porter, Philip Kotler, Clayton Christensen, Henry Mintzberg, Henry Chesbrough, Marshall Goldsmith and Gary Hamel, and Nobel Prize winners John Nash and Amartya Sen.

Before coming to China, I was an International Visiting Scholar at the University of California Berkeley. There, I explored how publications need to evolve with changes in technology and reader habits, and business journalism in Silicon Valley. I was awarded a Bill and Melinda Gates Foundation fellowship as part of the Africa Reporting Project to write about coffee and climate change in Uganda, Africa.

In 2010, I received the Polestar Award for Excellence in IT and Business Journalism. I have researched and edited two books: Leading with Conviction (Jossey-Bass) by Shalom Saada Saar and Michael Hargrove, and Culture of the Sepulchre (Penguin India) by Madanjeet Singh. The second book is closely linked to my family’s personal history in East Africa.

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