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Nielsen: Confidence Entered A ‘New Normal’ for Chinese Consumers in 2015
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Nielsen: Confidence Entered A ‘New Normal’ for Chinese Consumers in 2015

Tier 1 and rural consumers drive consumption, women born in the 1970s fuel the online shopping boom, demand for health care continue to grow

Chinese Consumer Confidence Index (CCI) stood at 107 in the fourth quarter of 2015, a rise of one point from the third quarter, said the latest Nielsen survey.

Worldwide, global consumer confidence ended 2015 on a subdued note as the index declined two points from the third quarter to 97. Compared to first quarter 2015, confidence in the fourth quarter remained flat in Asia-Pacific at 107. Among the world’s largest economies, China ranked the first (107), followed by the U.K. (101), the U.S. (100), Germany (98) and Japan (79), which all showed quarter-on-quarter confidence declines.

Compared to 2014, in China, consumers’ willingness to spend is up two points to 48%, the highest level over the past four years. Those figures indicate that despite China’s slowing economic growth, which fell to 6.9% in 2015, local consumers’ desire to spend are unaffected and keep rising.

“As China is shifting from an investment-driven to consumption-driven economy, China’s economic development has entered a ‘new normal’. With slight changes in CCI figures over the past four quarters and fluctuations observed from year to year, we are also witnessing a ‘new normal’ for Chinese consumer sentiment, but a steady one,” said Kiki Fan, managing director of Nielsen China.

According to the study, Chinese people’s rising willingness to spend is partly due to their optimistic perceptions of local job prospects over the next 12 months, as most of respondents believed the job markets will be excellent (9%) or good (55%), and think their personal finances will also be excellent (5%) or good (58%).

The Nielsen CCI measures perceptions of local job prospects, personal finances and immediate spending intentions. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.

People in tier 1 cities, towns and villages drive consumption

China’s burgeoning middle class and rising consumer demand is taking an important role in fueling the country’s economic growth. People in Tier 1 cities like Beijing,  Shanghai and Guangzhou, who are usually regarded as well-educated and financially-powerful, are at the leading edge of this rising consumption. As a result, their willingness to spend continue to take lead within China’s city tiers in the past four years, and achieved a four-year record high of 64 in 2015.

The rising popularity of online retail is the main factor driving Tier 1 city dwellers’ consumption. Although people are still exercising their purchasing power in traditional retail settings like supermarkets and malls, but more and more are taking to shopping online. The Nielsen report said the rising yearly Tier 1 city CCI is in line with year-on-year increase in sales volume of China’s e-commerce giants boosted by various ecommerce shopping carnivals they’ve initiated. The fourth-quarter CCI in Tier 1 city indexed at 116, six points higher than in the third quarter, evidently fueled by “Singles’ Day”, China’s biggest annual online shopping bonanza falls on Nov 11. The 2015 CCI in Tier 1 city stood at 113, two points rise year-on-year.

Looking within the country, in addition to Tier 1 consumers, rural inhabitants set to become empowered consumers. The Nielsen study said government’s support to rural ecommerce drove willingness to spend. Rural residents’ willingness to spend index has increased year by year and jumped to 44 in 2015. Convenience, value and variety are three key drivers for the villagers to go for e-commerce.

“Greater access to the Internet has made ecommerce platforms the shopping channel of choice for rural consumers seeking modern goods and services,” said Kiki Fan. “As more e-commerce companies are eyeing rural areas, growth in online shopping in counties and villages is becoming a new engine that will further drive China’s domestic consumption, and market potential for the rural areas is huge fueled by surging demand.”

The study shows that China’s urbanization drive and “One Belt, One Road” initiative have unleashed demand and fueled growth of rural areas as well. Demand for FMCG products, catering, home appliances and so on from rural residents is set to grow in the near future, as people are looking for more quality life with their rising consumption power.

Women born in the 1970s are the major drivers of the boom in online retail

Before 2015, the willingness to spend of people born in 1980s surpassed all age groups, but the trend was put to an end in 2015 as people born in the 1970s are catching up with their younger peers with index of both 1980s and 1970s stood at 50.

While looking at CCI willingness to spend by gender and age, according to the study, the index increased quickly in female consumers, especially those born in 1970s, in both Q4 and full year of 2015, as 1970s females moved quickly into the digital world and online shopping.

Seventy-six percent of 1970s female respondents said they own smart phones, 20 points growth year-on-year, 27% have tablets, 3 points growth year-on-year, and 9% have smart watch or electrical bracelet, 4 points growth year-on-year. Forty-five percent of them said they have made online purchases in Q4, and 42% of them expressed willingness to shop online in the future, both indexes slightly increased from Q3 (5% and 6%).

“Affluent female urbanites are often seen as China’s most important demographic for retailers, Chinese women born in the 1970s are increasingly empowered financially and they are driving the explosive growth of e-commerce in the region,” said Kiki Fan.

With buoyant willingness to spend, 59% of them said in 2016 they plan to invest more on children’s education, 54% will increase spending on phone charges and 51% will splurge on clothing. Long term, they said will spend more on entertainment, health/exercise, and life quality improvement categories like cosmetics.

Health care and medical mobile applications in great demand

According to Nielsen’s survey, Income (45%) and health (34%) remained the top national concerns for Chinese consumers in 2015. At the meantime, driven by people’s increasing concern on health, consumers started to concern more on health care, which jumped from seventh in 2012 to fourth in 2015 as consumers’ most concerned issues.

The study also finds that 18% respondents said they used medical and health related mobile applications in December, an increase of 175% in terms of utilization rate compared to only 7% in January, surpassing the growth rate of all categories of mobile apps.

“I see large market potential for mobile apps in healthcare in China, as the country is faces rising medical costs and an aging population. More than that, China’s severely imbalanced medical resources between hospitals in mega cities like Beijing and Shanghai, and that in the others, also provide huge development potential for the online healthcare business in China, as those mobile apps in health care are expected to fill this gap by providing professional consultation and registration services to mobile phone users across the country,” said Kiki Fan.

The survey shows that registration (36%), doctor consult (33%) and health evaluation (28%) are top needs for consumers on mobile health care. People’s consumption on Chinese medical function FMCG products grew four times faster than respective category average. For instance, people’s demand for toothpaste containing Chinese herbal medicine ingredient grew by 22%, far higher than ordinary toothpaste demand growth of 6%. But the report said despite huge demand for traditional Chinese medicine medical care products, the unmet needs are huge and requires manufactures to further explore.

ABOUT THE GLOBAL SURVEY METHODOLOGY

The findings in this survey are based on an online methodology in 61 countries. While an online survey methodology allows for tremendous scale and global reach, it provides a perspective only on the habits of existing Internet users, not total populations. In developing markets where online penetration is still growing, audiences may be younger and more affluent than the general population of that country. Three sub-Saharan African countries (Kenya, Nigeria and Ghana) utilize a mobile survey methodology and are not included in the global or Middle East/Africa averages discussed throughout this report. In addition, survey responses are based on claimed behavior rather than actual metered data. Cultural differences in reporting sentiment are likely factors in the measurement of economic outlook across countries. The reported results do not attempt to control or correct for these differences, therefore, caution should be exercised when comparing across countries and regions, particularly across regional boundaries.