In China, consumer wallets are getting thinner

Foreign brands that have placed heavy bets on China are having to reassess their position as, in the words of one South Korean ginseng producer, Chinese “wallets have gotten thinner”.

Whether it’s $18 for a two-ounce ginseng drink or $75,000 for a luxury mattress, the story is the same: Chinese consumers are becoming more frugal and the days of carefree spending have gone.

Why it matters

Following the global financial crisis of 2008, many upmarket western brands turned to China and its expanding middle class in search of continued growth, a strategy that largely proved successful. But now, with a slowing economy, growing unemployment and a disruptive zero-COVID policy, those same middle classes are as likely to be saving as spending. Add in global geopolitical tensions and US-China trade disputes and growth will be increasingly difficult to find. Marketing strategies will have to adapt accordingly.

Context

• In China, as elsewhere, inflation is a growing concern. In June, food prices increased 2.9% year on year (from 2.1% in May), while non-food prices grew 2.5% (2.3% in May). 
• China is aiming for 5.5% growth in the economy in 2022 but many observers think that is optimistic.
• Nationalistic sentiment also means that when consumers are opening their wallets they may favour home-grown brands over foreign ones, a trend seen from sportswear to ice-cream.

 Sourced from New York Times, South China Morning Post, Financial Times