China Economy

Chinese parents spend big on education and travel

Key Points
  • Morgan Stanley analysts predict in a report this summer that the online tutoring market for kindergarten to 12th grade will grow 23 times in the next 12 years, to $160 billion.
  • Traveling abroad has become a hallmark of Chinese self-identifying as middle class, according to a survey by Chinese travel booking site Ctrip.
  • However, falling marriage and birth rates in China, along with a decades-long one-child policy, are creating a population that is aging at a far more rapid pace than the U.S.
Tourists view the Qiantang River Tide at Haining during the National Day holiday on Oct. 7, 2017 in Jiaxing, Zhejiang Province, China. Domestic travel destinations were popular among Chinese tourists during the Golden Week holiday this year.
VCG | Getty Images

BEIJING — The biggest spenders of China's rising middle class may be the parents.

Last year, Shanghai resident Guo Kai said his family spent about 80,000 yuan ($11,428) on more than five extracurricular classes ranging from Chinese calligraphy to physics for their 13-year-old daughter. Most of the classes are one-on-one or held in small groups. But for math, physics and chemistry, Guo said to cut down on travel time, they switched last year to online courses with Xueersi (which operates under the New York-traded TAL Education).

Morgan Stanley analysts predicted in a report this summer that the online tutoring market for kindergarten to 12th grade will grow 23 times, to $160 billion in 2030, spurred by advances in technology and government mandates that at least 8% of education budgets go toward digitalization.

VIDEO1:3501:35
Costco apologizes for overcrowding at Shanghai store

"We see online education on the eve of disruption," analysts Sheng Zhong and Elsie Sheng said in a July 24 report. They expect TAL and Koolearn, online tutoring subsidiary of New Oriental Education, have the strongest offline business that can drive online growth.

As Chinese families grow more affluent, they are also stepping up spending beyond education. Guo said the family travels overseas at least once a year, and domestically multiple times, bringing the annual travel budget to 60,000 yuan a year.

Traveling abroad has become a hallmark of Chinese self-identifying as middle class, according to a survey by Chinese travel booking site Ctrip. The report also showed that between 2018 and the first half of this year, respondents were spending between 10% to 30% more on travel, with average expenditure of 6,000 yuan to 9,000 yuan per person.

We see online education on the eve of disruption.
Sheng Zhong and Elsie Sheng
analysts, Morgan Stanley

It's impossible to sum up all the nuanced business approaches to the Chinese consumer in one or two articles. Even as some platforms like messaging app WeChat or e-commerce sites like JD.com and Taobao now dominate, many industry leaders note the Chinese market is one characterized by rapid change – in consumer trends and government policy. Take the unexpected rise of group-buying site Pinduoduo, for example.

Keeping up with China's changing population trends

The caveat is, the current middle class growth story is the short-term view, and businesses may need to change tactics down the road. Falling marriage and birth rates in China, along with a decades-long one-child policy, are creating a population that is aging at a far more rapid pace than the U.S.

Yi Fuxian, a critic of the one-child policy and author of the book "Big Country With an Empty Nest," pointed out that in 1980, the median age of a person in China was 22, versus 30 in the U.S. By 2018, the median age of an American climbed to 38, but that of a Chinese person was two years older.

That has serious implications for future ratio of laborers to retirees, Yi noted.

As a result, some companies are already preparing for greater demand in health care and retirement, areas in which public support is less developed than the U.S.

In August, Ping An Good Doctor announced the launch of its "Private Doctor" platform that uses technology to connect users with experienced doctors in real time. Elderly patients can also use the system to make appointments, get escorted to a medical consultation and collect medicine, according to the company.

Ping An Good Doctor announced this week that the number of registered users on its online health care platform overall has topped 300 million.

Separately, Ant Fortune, a subsidiary of Alibaba-affiliate Ant Financial, launched a five-year partnership with Fidelity last year to study how aware and prepared Chinese are for retirement. While the private sector's participation in national retirement plans remains limited right now, Ant said last week it is ready to jump in once government policy allows.

"This is why, for Ant, retirement planning is our strategic direction," Guoming Zu, vice president, wealth management business group, Ant Financial, told reporters last week in Mandarin at a press event. He also noted that the idea of retirement investing needs to expand, since many people in China tend to look beyond themselves to consider how to help their parents and children save for the future.

At the same time, like other parts of the world, government reports showed the number of singles in China surpassed 222 million at the end of 2017, or about 15% of the population.

For a country that, as some have observed, highly values the traditional family, the alacrity at which its people are choosing new ways of living has significant social and business implications. It is, however, increasingly clear that it may be remiss to discuss the global market solely in terms of Facebook or Amazon, when WeChat claims more than 1 billion users alone.