Job prospects surged to 77 points in the first quarter, three points higher from the last quarter; willingness to spend and personal finance maintained steady growth, and both figures increased one point quarter-on-quarter to 62 and 71, respectively.
China’s Consumer Confidence Index (CCI) climbed one point quarter-on-quarter to 115 points in the first three months of this year, the highest score over the past ten years, according to Nielsen's latest survey.
The steady expansion shows that as the three main drivers of economic growth - consumption, investment and export – continued strong run, China’s economy developed in a steady manner with new growth points.
China’s GDP growth remained stable in the first quarter, up 6.8 percent year-on-year and 1.4 percent month-on-month, according to data from the National Bureau of Statistics. There had been more supporting factors in the first quarter for China to achieve high-quality growth, which laid a solid foundation for CCI’s steady growth.
“As China's economy maintains steady growth, innovation and emerging industries are creating opportunity and improving overall employment expectations,” said Tina Ding, vice president of Nielsen China. “At the same time, domestic demand becomes the main driver for economic development and continues to be a catalyst behind Chinese consumers’ willingness to spend.”
Nielsen’s CCI index measures perceptions of local job prospects, personal finance and immediate spending intentions. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.
CCI reaches a 10-year high, led by job prospects
According to the Nielsen report, CCI’s increase in the first quarter was a result of the combination of job prospects, personal finance, and the willingness to spend. Specifically, job prospects surged to 77 in the first quarter, three points higher from the last quarter. Personal finance and the willingness to spend
maintained steady growth, and both figures increased one point quarter-on-quarter to 71 and 62, respectively.
Job prospects in fourth-tier cities and rural areas witnessed significant growth. Nielsen data shows that the figure in the fourth-tier cities increased to 71 points in the first three months from 69 points in the previous quarter. Growth of job prospects in rural areas was the most obvious one, jumping from 78 points in the previous quarter to 83 points in the first quarter this year. The figure’s growth in other tier cities remained stable. At the same time, the rise of job prospects also contributed to the improvement of local buyers’ demand and consumption upgrading.
“China’s urbanization has been further advancing alongside the development of the Belt and Road Initiative. It began in coastal areas and eastern city clusters, and then extended to China’s midwest and southeast regions, which has led to the rapid development of a host of low-tier cities,” said Tina. “This development has brought new business and industry growth that are creating job opportunities for local markets.”
Low-tier consumption shows new features, empowered by potential group
Nielsen found that job prospects led to more obvious consumption growth in low-tier cities. According to Nielsen report, 44 percent of households in fourth-tier cities stated that their consumption expenditure has increased compared to last year, with growth rate of 21 percent. In the first-tier cities, the proportion was only 15 percent, down 6 percentage points from that of the fourth-tier ones. At the same time, fourth-tier consumers’ spending on necessities has surged significantly. Thirty-four percent of them were willing to spend more on their children’s education, daily necessities (21%), water, electricity bills (20%).
However, it is worth noting that consumers in four-tier cities have shown a tendency similar to citizens from the first-tier cities, as more of them also started to pursue “enjoyable life” and “healthy living.” Take “enjoyable life” as an example, 20 percent of consumers living in the fourth-tier cities were willing to spend more on dining out, and 18 percent on leisure and vacation.
At the same time, healthy living has become the mainstream lifestyle in the fourth-tier cities, which were mainly reflected in sports and health food. Nielsen data shows that seventy-seven percent of fourth-tier-city consumers prefer doing sports to stay healthy, while in first-tier cities, the figure stood at 67 percent due to the citizens’ high working pressure and shortage of spare time. In terms of healthy food, fourth-tier-city consumers closely follow the healthy diet after high-tier-city citizens. According to Nielsen's survey, bottled water accounted for 20 percent of the healthy beverages consumed in first-tier cities, while the figure in four-tier cities were similar 19 percent.
Nielsen found that there were a group of consumers with high potential in low-tier cities who played a role as opinion leaders. This demographic, accounting for 30 percent in low-tier cities, has relatively
higher incomes, relatively better education background, and willingness to purchase high-quality products. They were optimistic about their purchasing power over the next 12 months. Meanwhile, 55 percent of high potential buyers in low-tier markets were willing to purchase high-quality products, in comparison to 35 percent of non-potential population. Consumers with high potential accounted for 53 percent in first-tier cities. Consumers with high potential have strong willingness to spend on items like clothes and apparel (36%) and dining out (24%), personal electronics (18%).
"Due to relatively low cost of living and higher actual disposable income, a trend of consumption upgrade is emerging in low-tier cities. Young consumers in these are now more highly educated than in previous generations and are more receptive to new things. This segment is now driving consumer demand and leading the trend of consumption upgrade,” continued Tina.
Low-tier cities favor traditional channels and traditional ADs, but the influence of online channels and social media ads cannot be ignored
New retail has not penetrated in low-tier markets. Consumers still prefer conventional channels to new retail. According to Nielsen data, the proportion of consumers who have got to know and tried new retail models in the third and fourth-tier cities were only 25 percent and 1 percent, respectively. In fourth-tier cities, 41 percent of consumers still visited often the grocery stores (only 9 percent in first-tier cities), and the most frequently visited channels for 92 percent consumers frequently were supermarkets. At the same time, the continuous penetration of large-scale retailers drove the growth of offline consumption. According to Nielsen data, the number of large-scale supermarkets in low-tier cities continued to grow in 2017, with growth rate of 9 percent in third-tier cities and 7 percent in fourth-tier ones. Small and modern stores continuously improved the services for consumers, which added fuel to offline consumption.
Meanwhile, online channels can't be ignored. Nielsen data shows that the proportion of online sales out of total online and offline sales in low-tier cities was slightly lower those upper tier cities: 37 percent in third-tier markets and 19 percent in fourth-tier cities. However, low-tier cities have relatively higher potential growth for online sales. For instance, consumers expect to increase their online spending in third and fourth-tier cities by 18 percent and 23 percent, respectively in the next year, exceeding other tiers of cities.
The rise of online consumers’ potential in fourth-tier cities was inseparable from the gradual formation of their online shopping habits. Nielsen found that in the first quarter, the penetration rate of online shopping in the fourth-tier markets was 63 points, which was 19 points higher than the previous quarter. Their willingness to purchase online was 55 points, an increase of 20 points. In terms of the categories of online shopping, buyers in four-tier cities prefer clothes and apparel and household items. Meanwhile, personal care, fresh and service products were main factors for future consumption growth.
Different types of advertising in different channels exerted different effects on consumers. According to Nielsen data, 60 percent of those surveyed in fourth-tier cities hold the belief that online advertising was helpful for their purchasing decision on products or brands. They preferred to trust social media ads, which accounted for 36 percent. As for offline purchases, 88 percent of the respondents in the fourth-tier cities preferred to trust offline ads. Among them, in-store promotions and television ads were more likely to influence their buying decisions, accounting for 49 percent and 61 percent, respectively.
“In recent years, e-commerce continues to emerge in low-tier cities and rural areas, continuously enhancing trust and dependence on online channels. However, offline channels are still the primary choice for buyers. Brands need to choose the right channels based on their own characteristics, in a bid to effectively tap into the market. Meanwhile, advertisers must devise a strategy based on their distribution of products, so as to make ‘precision marketing’ a reality,” Tina said.