Doing business in China

Does your bank understand the China growth story?

Anatomy of the Chinese consumer

12 fun facts: did you know Chinese consumers had this in mind? *

  • To get rich is glorious: 96 per cent of respondents saw a stable or increasing annual income this year compared to 12 months ago
  • Hard assets: the biggest concern currently is on real estate prices, over job security, medical costs, education costs or terrorism
  • Chasing momentum: Wealthier individuals tended to be more adventurous in trading short term. 35 per cent of respondents with annual income over RMB200k chose to buy what goes up and sell within a few days
  • Take it from me: three quarters of respondents turn to friends for investment advice; more than half rely on friends for fashion trends; half trust their friends’ recommendations when buying infant formula
  • Foreign role models: only 6 per cent of respondents consider Chinese brands are better than imported brands in food and personal care; 94 per cent consider foreign brands are significantly better, slightly better or of similar quality
  • That’s the spirit: 44 per cent of respondents do not drink Chinese spirit Baijiu (so the majority does!)
  • A dairy healthy diet? the fastest growing food & beverage categories are milk, yoghurt, bottled water and fresh food; the top factor that influences purchase of food brands is how "healthy" they are
  • I browse: 75 per cent of respondents will spend more time on WeChat in the future; 65 per cent will spend more on Taobao; 30 per cent are also considering purchasing a car online; only 3 per cent have never purchased food or personal care online
  • Time to travel: 70 per cent of respondents are passport holders but only 35 per cent have taken a trip abroad; the top five destinations are Hong Kong, South Korea, Macau, Australia and France
  • Experiential drift: a majority of consumers would rather spend on travel and entertainment rather than shopping, even abroad; nature/hikes and tasty food are more important factors than shopping in choosing the destination
  • Brands are over-rated: when purchasing cosmetics, product quality, suitability and ingredients trump the brand name; when purchasing a car, design is key, brand name is not
  • Speedy smartphone: half of respondents bought a smartphone in the last 12 months; 60 per cent will purchase a new one in the next 12 months

Reaching the Chinese consumer through the digital economy

E-commerce giant Alibaba last November notched up record sales during China's Single's Day, an annual event that began as an anti-Valentine's Day celebration for single people in the 1990s. Around 120.7 billion renminbi ($23.39 billion) exchanged hands during the 11 November shopping spree, up from $18.7 billion in 2015. An even more intriguing fact is that 82 per cent of the purchases were made on smart phones.

Over half of China's 1.37 billion-strong population is now online, many with a large disposable income and savvy shopping habits. Global online spending is predicted to reach one trillion dollars by 2019, according to market research company Forrester. As more and more turn to the internet to do their shopping, Australian businesses are in a strong position to sell their products to a growing Chinese middle class.

The shopping extravaganza Singles' Day, which has become the worlds biggest online shopping day, is just one example of the digitisation of China. "This tells you what our clients are looking for in China and how they're ready to use technology to facilitate that," says David Liao, president and chief executive officer of HSBC Bank (China) Company Limited. It is about "client experience [and] client delivery."

E-commerce sites enabling sales of foreign goods to China, such as Alibaba's Group's Tmall Global, which launched in 2014, are catching on. Meanwhile, Beijing's policy of 'internet plus' – designed to transform the economy through promotion of internet banking and e-commerce – is helping to shift China from an export-led to consumption-led economy.

"Banking, with the digitisation of China, is probably going to leap-frog into a space that is unprecedented elsewhere," says Liao. Dr Chuyang Liu, China advisor at the Australian Trade Commission agrees: "China is a very fertile market – everyone wants to get a slice of Chinese revenue. I think it's a great opportunity for us."

Crucially, "distance no longer matters," notes Dr Geoff Raby of Geoff Raby & Associates, who served as Australia's Ambassador to China from 2007 to 2011. "Scale doesn't matter. You can be a very small operator and reach a huge market through mobile and ecommerce. Provision of services is a massive opportunity."

Dr Raby believes that Australia can play on its reputation for reliability, health, and safety. In China, Australia is seen "as a source of clean, green and safe products".

"Two elements happened here" says Dr Raby. "One, China has had a series of food scandals – the Chinese middle class consumers simply don't trust the government. In a system with a lack of transparency and no independent media they have their cause to have their doubts."

"Secondly, as incomes have risen, people have had disposable incomes to shop off-shore. And they're prepared to pay those premiums to ensure they have clean, green products. It's a very strong brand we have. Australian industry is getting much better at marketing themselves in China around these themes of green, clean products."

Australia can play off its reputation, too, as a desirable location to visit for health and wellbeing. "The beauty of [digital growth] is that it gives us a much greater ability to get very, very targeted to the right Chinese consumer at the right time," says Lisa Ronson, chief marketing officer of Tourism Australia.

It is not just about booking holidays online but about sharing experiences once you are there, something which Australian tour operators can capitalise on. "Of those Chinese tourists traveling internationally 53 per cent book on a smart phone app of some sort. Then they share a lot… about 80 per cent on some kind of [social media] channel," expands Ronson.

It is not all smooth sailing, however. "The big problem in China is inconsistency in application of the regulatory regime. The regulatory regime is fine but it is often applied in a very inconsistent way," says Dr Raby. "Products get left on docks and things like that at a great cost. It is in evolution from where it has been to a more modern economy."

Another challenge is being aware of cultural sensitivities, says Ronson, particularly when operating online. "It's not just translating website and other content directly, it's more understanding the user journey and how the Chinese interact with these apps and how they interact online. Are [service providers] able to craft itineraries on the desires of that individual person?"

Still, E-commerce in China "is very advanced, very adaptable and very experiential," says Liao. "The future is very bright."

* Source: Responses from 2,000+ Chinese citizens interviewed as part of HSBC Global Research 'China: Anatomy of the Consumer' September 2016.

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