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Chinese Consumer Confidence Remains Strong

Tier 1 Consumers Focusing on Quality-of-life Purchases, Lower Tier Cities Showing Demand Potential

Western Region Achieves Two-year Record High Willingness to Spend at 35 Points

Beijing – Nov. 18, 2015 – Chinese Consumer Confidence indexed at 106 in the third quarter of 2015 according to a new study by Nielsen. The index is relatively stable compared with the second quarter and only represents an one point decline. The three key components of the consumer confidence index also remained either flat or saw a slight downward fluctuation. Expectations for employment are stable at 66%, while personal finance saw a decline of one percentage point to 64%. Notably, while consumer willingness to spend is down one percentage point to 48%, this still represents its second highest level over the past two years.

“As China continues its transformation into the ‘New Normal’ economy, consumer demand will reach new levels of sophistication,” said Kiki Fan, Managing Director of Nielsen China. “Income levels continue to rise and information about goods and services are more accessible than ever before. So what we’re seeing are confident, middle class consumers who are looking to make purchases that improve their quality of life. At the same time, evolving e-Commerce and logistics capabilities are helping to unleash demand and drive growth.”

With respect to the confidence index within China’s city tiers, Tier 1 cities continue to show the highest index at 110, despite a two point decline. Tier 3 and Tier 4 cities both indexed at 107, which represented a two point drop for Tier 3 but a stable index for Tier 4. Finally, Tier 2 and Rural consumers both had an index of 106.

Tier 1 cities are clearly leading in terms of development and consumer confidence. However, as lower tier cities benefit from urbanization and improving logistics, confidence is expected to rise. In a similar fashion, less-developed geographic areas like Western China are showing signs of rising consumption power.

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

QUALITY OF LIFE IS KEY FOR SOPHISTICATED UPPER TIER CITY CONSUMERS

While the rapid growth of the past few decades has relied on heavy investment and manufacturing, China’s burgeoning middle class and rising consumer demand is now beginning to take a leading role in the country’s growth. Tier 1 consumers are at the leading edge of this rising consumption, offering a glimpse into what we can expect from lower tier consumers as China pushes towards a ‘New Normal’ economy.

Tier 1 cities have the highest consumer confidence index among all city tiers, and consumers in these cities also hold a strong positive outlook on their future prospects. When asked about their prospective income in the next 12 months, 68% of Tier 1 consumers said that they had a good or excellent expectation. Similarly, 62% had a positive expectation about their overall personal financial situation.

While fluctuations can be observed from quarter to quarter, the positive outlook of Tier 1 consumers on their economic circumstances has contributed to a clear long-term trend of rising willingness to spend. In Tier 1 cities, third quarter willingness to spend rose from 58% in 2013 to 61% in 2014 and to 63% in 2015, a steady rise of five percentage points over two years.

“Chinese consumers are gaining momentum in their education and careers and their standard of living is rising in parallel. Urbanization has contributed to the breakneck pace of Tier 1 city development and sophisticated consumers in these mega-cities are now demanding premium and high quality products,” said Fan. “We’re seeing impressive growth in health and quality-of-life categories, and we can expect a similar trend from mid and lower tier cities as they develop in the coming years.”

When Tier 1 consumers were asked what categories they plan to increase spending on in the near future, quality-of-life experiences and health related categories were top of mind. The number one response was vacation and travel, with 47% expecting to spend more in this category. Food and beverage (45%) followed and coming in third was dining out (42%).

Similarly, amongst Tier 1 consumers, quality-of-life and health concept product categories are growing much faster than the 1.3% value growth rate of the consumer packaged goods market this year, according to Nielsen. The size of the functional and health drink market grew 11% while the market for facial masks and condoms grew 17% and 12% respectively. Businesses in China that can adapt to this upgrading trend, as well as optimize their strategy for rising lower tier cities, will be in an excellent position to drive growth.

LOWER TIER CITIES AND WESTERN REGION SHOWING CONSUMPTION POTENTIAL

As lower tier cities continue to develop, these consumers remain primarily focused on satisfying their families’ household needs. 53% of Tier 4 respondents said they expect to spend more money this year on household expenses, an eight percentage point rise compared with last year. Additionally, rural consumers said that even after living expenses are accounted for, the top two categories where they plan to spend more this year are food & beverage (50% of respondents) and daily household use items (50%).

Despite lower tier city consumers’ focus on essentials, development is promising and observable. 44% of rural consumers expect to spend more on apparel & clothing, a seven percentage point increase compared with quarter two of this year. Finally, while only 10% of rural consumers expect to spend more on vacation or travel, this still represents a strong three point increase over the second quarter in a quality-of-life category.

A similar opportunity for growth in lower tier cities can be seen in financial and investment sectors. The percentage of respondents who invest in the stock market, mutual funds or other financial products is just under 30% in Tier 2 cities and below 20% in Tier 3 and 4 cities. Considering that approximately 70% of Tier 1 consumers said that they currently have money invested, it’s clear that there is plenty of room for growth. In terms of the type of investment, Tier 1 consumers say they invest in stocks most frequently while lower tier city consumers are more likely to spend on accident or life insurance. With income levels rising, consumers in lower tier cities will be looking for more investment opportunities, driving the growing market for financial services firms.

Development can also be seen in terms of geography. China’s Western region saw its consumer confidence index increase one point to 97 this quarter. The North remained stable at 104, while the South dropped two points to 108, and the East saw a slight downward fluctuation of one point to 116.

The Western region appears to have experienced some positive development from China’s “One Belt, One Road” policy, which aims to increase demand by improving export capabilities for manufacturing sectors. This may be a reason behind the West achieving a two-year record high willingness to spend for the second quarter in a row. Currently at a level of 35 points, this is a three point increase compared with quarter two of 2015.

While spending habits are likely to differ for the foreseeable future, the quality-of-life demand of upper tier city consumers is clear and the consumption potential of lower tier cities is apparent. These trends, coupled with China’s advancing infrastructure, logistics chains, and e-Commerce capabilities, are leading China towards a healthy transformation into a strong, consumption led economy.

ABOUT THE GLOBAL SURVEY

The Nielsen Global Survey, which includes the Global Consumer Confidence Index, was established in 2005. This Nielsen Global Survey of Consumer Confidence and Spending Intentions was conducted Nov. 10-28, 2014 and polled more than 30,000 online consumers in 60 countries throughout Asia-Pacific, Europe, Latin America, the Middle East/Africa and North America. The sample has quotas based on age and sex for each country based on its Internet users and is weighted to be representative of Internet consumers. It has a margin of error of ±0.6%. This Nielsen survey is based only on the behavior of respondents with online access. Internet penetration rates vary by country.

Nielsen uses a minimum reporting standard of 60% Internet penetration or an online population of 10 million for survey inclusion. The China Consumer Confidence Index is compiled from a separate mixed methodology survey among 3,500 respondents in China.

The sub-Saharan African countries in this study are compiled from a separate mobile methodology survey among 1,600 respondents in Ghana, Kenya and Nigeria. These three countries were added to Nielsen’s measurement of consumer confidence in the first quarter of 2014 using a mobile survey methodology, which differs from the online methodology used to report consumer confidence and spending intentions for the other 60 countries outlined in this report. As such, the three sub-Saharan African markets are not included in the global or Middle East/Africa averages discussed throughout this report.

ABOUT NIELSEN

Nielsen Holdings plc (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy. Nielsen’s Watch segment provides media and advertising clients with Total Audience measurement services across all devices where content — video, audio and text — is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry’s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen provides its clients with both world-class measurement as well as analytics that help improve performance.  Nielsen, an S&P 500 company, has operations in over 100 countries that cover more than 90 percent of the world’s population. For more information, visit www.nielsen.com.

CONTACT:

Edith Li +8623269219 Edith.li@nielsen.com