BEIJING: Purchase habits are gradually changing in China, but consumers remain "extremely anchored" to only buying what they can genuinely afford, a report has argued.
McKinsey, the consultancy, stated in a new study that even though the Chinese economy is possibly in the strongest position of any worldwide, this is yet to result in an uptick in spending among its citizens.
Household consumption in the country contributed a modest 35.6% of GDP in 2009, an improvement on the level of 35.1% in 2008, but down from over 50% in the late 1980s.
Yuval Atsmon, a co-author of the analysis, predicted any reversal in such a situation would occur during the medium-to-long term.
"It should go back in the next ten years to the low 40s, but the consumer trends that we are seeing this year are not suggesting that you're going to see anything drastic in the next couple of years," he said.
More specifically, annual domestic consumption is anticipated to rise by around 11% annually in the near future, meaning private expenditure will account for 42% of GDP at the close of the decade.
A survey of 15,000 people in 49 cities seemingly confirmed widespread assumptions about financial conservatism in China still hold true.
The average number of shopping trips per month has declined from 2.5 in 2008 to just two in 2010, although the typical basket has climbed to 24.1 yuan ($3.55; €2.79; £2.30), compared with 18.4 yuan, in this period.
Savings rates stand at a third of income, and a reticence to acquire products on credit remains another common trait.
"It will not disappear tomorrow morning," said Max Magni, leader of McKinsey's consumer goods practice in Greater China. "The Chinese consumer remains extremely anchored to what they can afford at the moment."
Only 1% of adults make regular purchases in the luxury sector, and generally when customers trade up in one category they offset this by switching to cheaper offerings elsewhere.
Indeed, the top quartile of China's population in terms of wealth actually reined in their outlay to a larger extent than all other demographics in Q2 2010, McKinsey said.
While brands continue be of importance in the country, loyalty levels are beginning to drop as a more complex set of habits emerge.
"We are seeing more maturity in consumer behaviour," said Atsmon.
"Consumers are not just swayed by the big brand names, they are willing to pay for products that are better, but are also weighing the different dimensions in a more mature way."
Despite this, the report said "emotional" and "functional" characteristics can stimulate interest in certain items.
"Purchasers of laundry detergent are now increasingly demanding 'good scent' as well as 'appealing package design'," McKinsey argued.
The internet is also assuming a heightened role, with 56% of respondents viewing online advertising as a reliable source of information, measured against 29% in 2009.
A further 70% expressed similar confidence in retailers' official websites, a much greater proportion than in the West.
"The fact that online information is held in such high regard in China makes the Internet an extremely important medium for shaping consumer opinion," McKinsey's study said.
Data sourced from China Post; additional content by Warc staff