China, like every other major economy, is facing an unprecedented set of challenges, with profound implications for the way in which consumers engage with brands. The world’s second largest economy has narrowly skirted a contraction in recent months, crippled by rolling lockdowns, skyrocketing youth unemployment, a deep property downturn, and lacklustre retail spending.
Yet, lifting the lid on this incredibly diverse nation tells a mixed story of continuing prosperity in the face of such difficulties. The economy is still growing – more than can be said for most Western markets – and inflation remains low at just 2.5%, owed in part to China’s non-participation in global sanctions against Russia. The Chinese government’s priorities during the pandemic has been to shore up property and investment (not always successfully), leading to a boom in assets in the upper echelons of society. Household wealth grew 15.1% last year, while the number of Chinese millionaires increased around 20 per cent, with Credit Suisse predicting that the total number will double again by 2026.
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However, behind these big numbers, the last couple of years have had a deep impact on consumers, fundamentally reshaping their relationship with brands. Perhaps one of the biggest drivers underpinning almost all emerging retail trends is a growing sense of disillusionment among younger demographics in particular. They witnessed their parents’ lives improve inexorably in the 1990s and 2000s, inheriting a sense of aspiration and even expectation. A China Youth Daily survey in 2021 found that as many as 68% of Chinese college students estimated they would be earning one million RMB (£120,000) within ten years of graduation. This optimism has been a key driver of retail and luxury growth globally, with Chinese Gen Z spending as a percentage of income far outstripping their international counterparts. To their surprise, what awaited them was economic collapse, unaffordable housing and 20% youth unemployment.
This sense of despair has tipped over into frustration, with locals turning to social media to vent. Online forums talk of three possible antidotes to a gruelling 996 culture (working 9am to 9pm, six days a week) that fails to deliver on its promises. The first is to “touch fish” (mo yu), to carve out me-time at work as part of a “lying flat” (tang ping) lifestyle. The second is to simply “let it rot” (bai lan), to give up entirely on the rat race and withdraw to a simpler life. The third is to “run”, a transliteration of the English word, as educated and sufficiently well-off young professionals consider emigration as a way of escaping a situation that offers few immediate prospects.
This burnout culture has given rise to a host of consumer trends. Rural livestreamers compete with tang ping idols such as Lelush for the attention of people desperate for a sense of escapism, while brands fall over themselves to provide outlets for pent up frustration and relaxation. An elevated consciousness of the lived environment is fuelling increased awareness of sustainability issues in a way that until now was not mainstream. Niche and quiet luxury brands are breaking through as vehicles of self-expression that depart from established shopping conventions. This, in turn, has given rise to new waves of domestic competitors who are breaking through in almost every category, capturing market share in verticals long dominated by foreign players. A focus on whimsy and entertainment has given rise to revamped and exaggerated brand strategies such as the cross-over collaboration, by now the best way to unlock transformative growth among target audiences old and new.
The next year will likely bring some limited relief to the situation. With the 20th Party Congress now behind us, there is a faint hope that some of China’s most stringent zero-Covid policies will be relaxed. The signs are there: quarantine-free travel in Hong Kong, a new Chinese mRNA vaccine, and the appearance of Chinese leaders without facemasks for the first time since January 2020. Much of this will depend on China’s ability to increase its vaccination rates, something that has proved stubbornly difficult to-date.
International travel has begun to trickle through among China’s Ultra-High-Net-Worth Individuals (UHNWIs), who use their properties in Hong Kong as an intermediary station to avoid quarantine. A relaxation in zero-Covid would allow for a broader resumption of tourism, though without a complete dropping of quarantine restrictions outbound tourism is likely to never recover to where it was just 36 months ago. Of course, a further key question now is how the expectations of travellers have changed in the intervening time.
Another factor for brands here in London is also the state of UK-China relations. With Liz Truss now departing Number 10, there is some hope of a more conciliatory, pragmatic tone from the new Prime Minister Rishi Sunak. The British government is right to call China out on its human rights record, among other things, but a complete decoupling from China is likely to polarise the situation further. For now, the balance appears to be remarkably stable: firm public rhetoric, but continued collaboration behind closed doors.
In this increasingly complex consumer space, companies should be taking the time to invest in three core areas.
First, “China literacy” has never been more important. Shifts in Chinese policy or consumer sentiment have ramifications far beyond the country’s own shores. It is a core responsibility of any senior decision-maker to be abreast of political, regulatory, economic and social developments in-market to be able to critically analyse their impact on business here.
Secondly, teasing out local relevance of your global identity and values has become a must-have for successful consumer strategies as consumers demand more from their interactions with companies.
Thirdly, as competition increases, brands must source opportunities for breakthrough growth, whether in collaborations, emerging content commerce or through captive audiences of consumers here at home. Despite, or perhaps due to the challenges outlined above, China remains one of the most exciting and rewarding markets in the world for brands willing to adapt and evolve.
Picture credit: Gui Yong Nian