Sue Feng, [email protected], 010-5912-9195
“Emerging Tier 1” Cities to Become Powerhouse of Chinese Economy
BEIJING, CHINA – Feb 19, 2014 – Chinese consumer confidence reached a record high of 111 points in Q4, ending the year three points higher than it started and 5 points higher than the same time period the previous year, according to findings from Nielsen, a leading global provider of information and insights into what consumers watch and buy.
The 1-point boost in consumer confidence from Q3 put China in the No. 4 spot among the 60 countries and regions covered by the Nielsen survey, following only Indonesia (124), India (115) and the Philippines (114).
U.S. consumer confidence fell four percentage points in Q4, from 98 to 94, after a two-point jump in the previous quarter. But U.S. consumers ended 2013 with more optimism than they had at the start of the year – as did consumers in Germany, Japan, China, the U.K., France and 28 other countries.“Thanks to a stabilized GDP growth rate, a resilient labor market and steady household income growth, Chinese consumer confidence grew in the last quarter of 2013. Key factors were better job prospects and stronger purchase intentions, which saw an increase of three percentage points and four percentage points respectively,” said Yan Xuan, President of Nielsen Greater China. “As 2014 progresses, a brighter outlook is expected. The key challenges are translating this confidence into actual purchase power, and further improving the domestic consumption’s contribution to the overall GDP by creating more demand through deeper understanding of Chinese consumers.”
Nielsen’s information shows Chinese consumers’ perception about spending intentioni in Q4 of 2013 reached 47 percent, the highest since Q2 2010, while the perception about job prospects jumped to 75 percent, the highest since Q2 2012.
“Besides the 8.1 percent of combined growth of disposable income among Chinese consumers, the well-controlled CPI and the concentration of Chinese style shopping carnivals in the last quarter all help boost the Chinese consumers’ willingness to spend,” said Patrick Dodd, Managing Director of Nielsen China.
Amid the 2.6 percent of CPI growth in 2013, Nielsen’s survey also indicates that compared with the Q3 of last year, 12 percentage points less respondents expect a rise of overall price in the next 12 months, while 16 percentage points more expect the price will keep the same.
“It builds up a good foundation for future spending as long as the CPI growth rate can be kept at a low level. At the same time, the continued rise in minimum wages as mandated by many local governments across the country have put more cash in more people’s pockets and raised their willingness to spend,” Yan Xuan said.
The fourth quarter was the biggest contributor (32%) of the total fast moving consumer goods sales for the year (among channels and categories monitored by Nielsen) – thanks to the concentration of holidays like Christmas and New Year’s, as well as traditions like the Singles’ Day shopping spree.
“It shows the dynamics of how the consumption has been generated, as both manufacturers and retailers tried to leverage these created shopping events to boost their sales by meeting the Chinese consumers’ desire for excitement and self-rewarding through spending,” Dodd explained.
Meantime, the overall slowdown of GDP growth over the past couple of years has been felt in China’s retail market in 2013, with the growth of national retail sales declining for most of the industries. FMCG sales also slowed down to single-digit growth in Q4, and closed at 7 percent year-on-year growth for 2013. While in 2012, growth was a much brisker 15 percent.
“It’s a challenge, but also an opportunity backed up by the strong willingness to spend among Chinese consumers. The key to getting out of the doldrums lies in identifying new demand based on the consumers’ changing needs and shopping behavior, and exploring the new frontiers for future growth,” said Dodd.
Behind the record-high consumer confidence index, is the big jump of Tier 2 (112 points) and Tier 3 consumers (111 points), which recorded 8-percentage-point and 4-percentage-point growth respectively compared with the start of 2013. In comparison, the confidence in Tier 1 cities from Q1 to Q4 increased five points, from 109 to 114; eight points in Tier Four cities, from 102 to 110; and declined one point in rural China, from 112 to 111.
In Tier 2 cities, throughout the year of 2013, respondents’ optimism grew for job prospects (from 62% to 68%), for personal finance, (from 67% to 73%), and for spending intention, up 16 percentage points, to 59 percent.
Tier 3 cities saw similar increases: 8 percentage points up for job prospects, to 69 percent; four percentage points up for personal finance to 72 percent; and 7 percentage points up for purchase intentions, to 55 percent.
New clothes, putting into savings, dining out and children’s education are the top four areas where the Tier 2 and Tier 3 consumers spend with their spare cash.
“We are glad to see this high confidence among Tier 2 and Tier 3 consumers. Their huge spending potential could be vital for China to realize its transformation from investment-driven to consumption driven economy,” said Dodd.
The Tier 2 and Tier 3 cities (defined by Nielsen) include a total of 113 million households from 252 cities, and their combined household income is estimated to be 5 trillion yuan in total. And for 2013, these two tiers contributed nearly half (44%) of the total FMCG sales, 6 percentage points up compared with 2012.
Fifty-eight percent of newly opened stores across China are found in Tier 2 and Tier 3 cities, while more than half of the Tier 2 (62%) and Tier 3 (56%) consumers claimed they shopped online over the past three months.
Based on a few key indexes for consumption, including local GDP growth, population size, urban consumer disposable income, the retail sales value and the trade development indexii, Nielsen chose a few cities with huge growth potential as examples of the so-called “Emerging Tier 1 Cities” in the future. These included cities such as Chongqing municipality known for its huge population size; the capital city of Shaanxi Province in West China, and Tier 3 city Suzhou in eastern China whose urban disposable income is already closer to that of Shanghai.
“For these cities, it doesn’t mean they have to take the lead in all these five indexes to become Emerging Tier 1 cities. But with an overall combination of these five indexes, we believe with the deeper penetration of traditional and emerging channels, as well as the e-commerce channels to reach consumers of different kinds there, plus the continued growth of the local economy and further increases in urban disposable income, these cities will become the powerhouse of China’s future economy,” Dodd said.
Income (69%) continued to be the top concern for rural consumers. But attention to health has been climbing significantly for city consumers.
When you take out Tier 1 cities, health matters most to all other city consumers, especially to Tier 2 and Tier 3 cities by winning 37 percent of respondents’ votes each, more than 10 percentage points higher than their concern for income. In Tier 1 cities, health is virtually tied with income (26% vs. 27%) as the top concerns.
Health and wellness categories and sub-categories maintained robust growth in 2013. After becoming the No. 2 juice flavor in 2012, “pear juice” saw a high year-on-year growth of 28 percent in 2013. Similar trends can be found in the dairy market where the western health concept has been more and more accepted by Chinese consumers. In 2013, skim milk led the liquid milk market with a year-onyear growth of 72 percent, followed by low-fat milk (14%) and full-cream milk (11%).
“In this regard, a deeper understanding of the Chinese consumers’ health pursuits and their very segmented and specialized needs will be very important for manufacturers and retailers to recognize the unmet demand in the market – and thus generate more growth opportunities,” Dodd said.
About the Nielsen Global Survey
The Nielsen Global Survey of Consumer Confidence and Spending Intentions, established in 2005, measures consumer confidence, major concerns, and spending intentions. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism. The survey was conducted Nov. 11-29, 2013, 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 their Internet users, is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60-percent Internet penetration or 10M online population for survey inclusion. The China Consumer Confidence Index is the biggest of its kind and is compiled from a separate mixed methodology survey among 3,500 respondents in China covering all tier cities and rural markets. The Nielsen Global Survey, which includes the Global Consumer Confidence Index, was established in 2005.
Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence and mobile measurement. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA, and Diemen, the Netherlands. For more information, visit www.nielsen.com.
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i “Spending intention” here means perception about whether it’s a good time to buy. “Spending Intention” does not have a numerical value attached. The numerical values are related to the different categories, like out-‐of-‐home entertainment, new clothes, etc.
ii Trade Development Index shows the individual city’s level of development in trade. 1 means the average of more than 2000 cities across China.