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As China becomes an increasingly important part of the global economy, no investor or business leader can ignore the increasing influence of its consumers. The tastes and preferences of China’s market of 1.3 billion people has the potential to sway demand and shift the trajectory of global consumer spending.
This is especially true as China’s consumer spending is growing at an average annual rate of 18 percent, according to the National Bureau of Statistics, compared to 2.2 percent gain for the U.S.
As many foreign companies have demonstrated, cracking China's consumer market is easier said than done—and there have been some notable stumbles. U.S. home-improvement giant Home Depot shut down five of its 10 stores since entering the market in 2006, while Best Buy, the world's largest consumer electronics retailer, closed all of its branded stores in China this year. Retail giant Wal-Mart Stores was only able to turn a profit in the country in 2008, 12 years after first entering China.
There have also been some notable successes, such as U.S.-based Yum! Brands, which has become the largest Western restaurant brand in China. Yum! currently has a 40 percent share of China’s fast-food chain market, compared with 16 percent for McDonald's, according research firm Euromonitor.
Some consumer trends in China are well known, such as the increasing demand for luxury goods, but others may surprise you. CNBC.com put together a list of 10 major consumer trends, including the companies and sectors they have the potential to profit from them. The list is based on studies and reports from international organizations such as the United Nations, the U.S. Department of Agriculture, and research firms including Euromonitor International and McKinsey & Co.
Which trends are changing the course of China's consumer economy? Click ahead to find out!
By Rajeshni Naidu-Ghelani
Posted: 28 July 2011
China is the world's second largest consumer of corn and demand continues to increase. It is also the world's second largest producer of corn behind the U.S., which may be surprising for a country whose main staple is rice.
Indeed, most corn in China isn't consumed by humans at all—75 percent of its corn consumption is used for animal feed. Corn consumption has grown consistently, rising nearly 3 percent each year for the past decade.
The country's corn imports will reach a record 5 million metric tons by the end of 2011, which is more than double the 2010 level of 2 million tons, according to the United Nations' Food and Agriculture Organization. That surge in demand has helped push corn prices on the Chicago Mercantile Exchange up 17 percent this year alone.
The underlying demand for grain-fed meat is being driven by rising wealth, which in turn is increasing meat consumption. Wealthier Chinese consumers are also demanding better quality meats. Rather than importing grain-fed meat, the government is encouraging farmers to adopt organic practices of feeding corn and soybeans to hogs and cows.
China's health food market is expected to grow to $70 billion by 2015, more than tripling from $20 billion in 2010. The expanding appetite for more healthful foods among the country's fast-growing middle class and aging population has boosted demand for imported fruits, nuts, and yogurt.
Global prices of nuts, such as cashews, walnuts, pecans, and almonds, are at record levels, boosted by Chinese imports. China's probiotic market is also expected to grow 120 percent from 2009 to 2012, according to Euromonitor.
Countries are eager to meet China's demand for health food, despite the government's policy of food self-sufficiency. Last month, Chile signed a deal to be the only direct exporter of fresh blueberries to China after two years of negotiations.
China's mobile internet industry is booming, growing much faster than rates seen in many developed countries around the world. China is set to surpass one billion mobile connections by May 2012, according to a report by Wireless Intelligence.
About 22 percent of urban Chinese mobile phone users browsed the Internet on their phones at least once a week in 2010, that's up from 15 percent in 2009. Not bad for a mobile phone market that boasts 770 million total users and 318 million users with Internet-enabled mobile phones.
Another rapidly growing trend is instant messaging services, such as MSN Messenger and QQ. Just 1 percent of the population used instant messaging on their mobile phones in 2008, but two years later the number jumped to 15 percent.
Leading the trend are urban youth, with 41 percent using web browsing on their phones in 2010, compared to 29 percent in the year before.
Finnish company Nokia dominates the Chinese mobile market, but is starting to face stiff competition from Apple and Samsung, while domestic brands such as HTC, Huawei, and ZTE also have significant brand recognition in China.
China will overtake the U.S. to become the world's largest consumer of wine by 2015, says Euromonitor. About 126 million cases of wine were sold in China in 2009.
The country is currently the world's fastest growing market for wine consumption, with growth rates of around 20 percent annually in each year of the last decade. Sales of imported wines are growing faster than domestic brands.
Wine drinking is considered a healthier alternative to spirits, and an increase in the number of women who drink alcohol has also boosted demand for wine.
The Chinese government is looking into ways to make domestic wines more attractive to consumers. Earlier this month, government-controlled Bright Food Group said they would consider acquiring wine assets in Australia, France, Chile, and the U.S., after dismissing rumors that it was in talks to buy Australia's Treasury Wine Estates.
China is home to the world's fastest growing travel market. With 65 million outbound departures expected this year, the UN World Travel Organization estimates that there will be 100 million Chinese outbound trips by 2020.
Travel has become a top priority for the newly wealthy in a country where few used to travel outside its enormous borders. Chinese tourists are spending more money on their travels abroad—boosting tourism industries in countries around the world.
National carriers from the Middle East to New Zealand are rushing to launch new direct flights to a number of cities in China. In 2010, more than 450,000 Chinese visitors spent $3 billion in Australia, which was 20 percent more than the year before.
The industry is famous for its large-scale group travel, with groups as large as 12,000 traveling to Europe, according to Peter Harbison, executive chairman of the Centre of Asia Pacific Aviation.
Hotels and tour companies around the world are gearing up to meet this demand. The iconic Burj Al Arab hotel in Dubai, for example, has hired a number of Chinese speaking staff, created brochures and programs in Mandarin, and added Chinese cuisine to its menu to accommodate this growing trend.
Increasing numbers of Chinese are buying pets, as the country's attitude toward pet ownership has evolved. One-child households and an aging population have created an environment in which pets have become an extension of the family.
The trend is driven by increasing levels of disposable income, and consumers are now able to afford better care for their animals. The pet population grew a rapid 20 percent from 1999 to 2004, according to Euromonitor. Dogs are the most popular pets, with their numbers growing 10 percent a year, but the true number is likely higher, since this figure only includes registered pets.
The increase in pet ownership has led to an increase in pet-focused websites and social networks, and dog treat stores. The country is also attempting to regulate the pet industry. Last year was the first in which veterinarians were required to pass an exam in order to obtain a license. In an effort to control the pet population, the government has introduced a one-dog rule in major cities, such as Beijing and Guangzhou.
Dogs are also viewed as a status symbol among wealthy Chinese, and young Beijing pet owners have been dubbed "gouyou" meaning "dog friends." A multimillionaire coal baron from the country's north bought a Tibetan Mastiff for about $1.6 million earlier this year, while another Chinese woman bought the same breed for $600,000 in 2009. Some of the world's most popular dog breeds originated in China, including the Pekinese, Pug, Shih Tsu, and Chinese Crested.
China has the world's largest number of students studying abroad, with about 1.27 million students attending foreign universities at the end of 2010. This represents an increase of 284,000 students, or 24 percent from 2009. Many undergraduate students choose to study abroad to avoid China’s highly competitive national college entrance exams.
Britain's University of Cambridge, for example, had 1,000 Chinese students last year, comprising approximately 8.3 percent of the student body.
Adding to the trend, more middle-class families are able to afford a foreign education for their children. Indeed, 93 percent of students studying abroad are funded by their families.
Some Chinese parents, eager to expose their children to foreign culture, are willing to spend roughly $5,000 to send them to American summer camps. Organizations such the U.S.-based American Chinese Academy and Shanghai-based Blue Sky Study fly kids to partake in the American tradition. An estimated 60,000 Chinese children will join immersion programs at U.S. summer camps this year.
China's growing demand for luxury goods has been well publicized and global luxury retailers are flocking to the country to cash in.
Luxury consumption in the country is predicted to grow 18 percent annually from 2010 to 2015, and reach $27 billion by 2015. If these projections prove to be correct, China would account for more than 20 percent of the world's luxury market by 2015.
China is the fastest growing market for a number of luxury brands, including Tiffany. The retailer's sales in the country jumped 27 percent in the second quarter, compared to the same period the year before.
China's demand for luxury products has continued unabated, despite the 2009 global recession, rising 16 percent that year. The world's priciest luxury brands have taken notice of this trend. In 2006, Gucci had six stores in the China but it now has 39, while Hermes quadrupled its stores from five in 2005 to 20 today.
Not only is China attracting more luxury retailers, it's also becoming a manufacturer of luxury goods. About 20 percent of Prada's luxury collection is made in China, while French luxury group LVMH’s Moet is planning to start production of its sparkling wines in the remote Ningxia Hui region.
Although China is the world's biggest polluter, wealthy Chinese consumers are becoming as environmentally conscious as consumers in the West.
About 84 percent of consumers said they were prepared to pay more money to buy products and services that were certified as "green," according to a survey by research firm TUV SUD Asia Pacific. In the survey, about 74 percent said they had purchased green products.
Sales of electric vehicles — hybrids, plug-ins, and battery-only cars — will grow to 7 percent of China’s new light-vehicle sales by 2020, compared to just 2 percent for North America, according to projections by management consulting firm Boston Consulting Group.
But the trend isn’t restricted to consumers: The government is also pushing ahead with green technology plans in order to make the country the world's leading producer of renewable energy. China invested about $34.6 billion in renewable energy in 2009, double the amount invested by the U.S.
China's government is cracking down on its domestic property market after a multiyear boom, and that's driving property investors abroad.
Chinese buyers have been snapping up properties in countries such as the U.S., Canada, Australia and the U.K., according to various reports from these countries. International real estate firms, such as CB Richard Ellis, have set up dedicated branches to help Asian buyers purchase homes abroad. China's biggest real estate website, Soufan Holdings, has been bringing Chinese property investors on tours of U.S. cities, including New York, California, Boston, and Las Vegas, over the last two years.
Chinese buyers were the largest single block of investors buying London investment properties, accounting for nearly 11 percent of sales in 2010, according to real estate firm Knight Frank.
The trend is pretty surprising, given that the Chinese government bars its citizens from buying more than $50,000 worth of foreign currency each year. However, Chinese property buyers have found ways around the restrictions, working with relatives to pool money together or sneaking money out of China.