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03/29/2007

China's Consumer Market Poised for Growth

The findings of a recent Credit Suisse survey show that China is on course to become the world's second-largest consumer market by 2015, with the United States being first. According to an article from the Boston Globe and numerous international publications, the Credit Suisse report indicates that overseas firms currently produce far more in China than they sell there, but this is likely to change as the economy comes to rely more on consumption -- which is predicted to hit $8.8 trillion by 2020 -- than exports.

However, consumer goods companies may face challenges trying to come up with winning strategies. "The potential of the market is huge," Vincent Chan, Credit Suisse's head of China research, told Reuters. "However, the execution in the process could be tricky."

Foreign companies such as Coca-Cola Co., Nestle, Procter & Gamble and Swatch, appear to be well-placed to ride the unfolding consumer boom, the report says. Luxury manufacturers such as LVMH, whose handbags are coveted by a small but growing group of super-rich, should benefit given their relatively low advertising overheads. But companies seeking inroads into the mass market need to adapt their products to local tastes and prepare to slash prices to cope with fierce competition, Chan said. Outsiders will probably find it harder to break into the services sector, where Chinese companies have the upper hand because of their cultural know-how, he said. 

Other factors and highlights from the survey include:

  • China's households generally save or invest a quarter of their total income and spend almost the same proportion on food.

 

  • Consumers between the ages of 20 and 29, who enjoy the most buoyant income growth, tend to splash out more on clothes and entertainment, making them the prime target group for China-bound retailers.

 

  • Some of the country's consumer dynamics are shifting, the report finds: the appetite for electronic goods such as digital cameras and mobile phones is waning, while confidence in the quality of local cosmetics is growing.

 

  • As many as 75 percent of those surveyed indicated a reluctance to pay more for foreign cosmetics, up from 62 percent in 2005 and 50 percent in 2004.

 

  • More Chinese are traveling, with 52 percent of respondents saying they took a flight in 2006 compared with 48 percent in 2005. The survey found that Southeast Asia is losing popularity to Europe and East Asia as a holiday destination.