BEIJING: China is a two-speed consumer economy with optimistic, "high-speed" households expected to generate 90% of new consumption by 2020 while "low-speed" consumers are less willing to spend, a new report has said.
These high-speed households, consisting mostly of the urban middle-class, currently number 81m people and generate $1.7tr of the $3.2tr in total urban consumption, but their numbers will swell to 142m by 2020 when they will account for $3.8tr of the $5.6bn in total urban consumption.
Crucially, they are expected to power consumer spending in the years ahead, according to The Boston Consulting Group (BCG) China Center for Consumer and Customer Insight's annual survey of consumer sentiment.
The report said that households with income growth exceeding 5% in the past year are twice as likely to spend more in the coming year than households with slower income growth.
Also, the average affluent household expects nearly 11% income growth while the average aspirant household – those with lower incomes – expects just 6%.
This five percentage point difference, given the vast disparity in income levels between these two groups of consumers, translates into a 20-fold difference in actual earnings, BCG said.
It is also expected that total spending by less affluent urban consumers, or "low-speed" households, will grow by just 3% a year from 2015 to 2020.
Taken together, there are "vast implications" for consumer-facing companies, BCG advised, because a mass approach to such a huge market simply will not work.
It said companies will need to adopt a multichannel approach because high-speed consumers are digitally savvy and active online shoppers.
Demographic and geographic changes over the next five years also will require companies to broaden their physical distribution channels if they want to reach these high value consumers.
Of today's 81m high-speed households, 46m are located in lower-tier cities, but it is expected there will be 84m of them in lower-tier cities by 2020.
BCG went on to predict that, by then, companies will need a presence in 615 cities in order to reach 80% of these high-speed households.
"By focusing on the high-speed parts of the Chinese consumer economy, companies can avoid getting stuck in the slow lane," the report concluded.
Data sourced from BCG; additional content by Warc staff