New Gold Mines of China
By Ashok Sethi, TNS RI China
We have begun to expect the Western democratic institutions to display a certain degree of debate and even raucousness. However the Chinese equivalent legislative bodies, whose leaderships largely consist of engineers are expected to be much more disciplined and go about their business in a focused manner, confining themselves to the weighty matters of national economy and defence. And they normally behave as expected. However The Chinese communist party recently concluded a meeting of the central committee in Beijing which adopted a guideline that is aimed at boosting China's soft power and maintain "cultural security". The communique said that China aims at creating a xiao kang (moderately well-off) society, by providing the people both a comfortable material life and a healthy and rich cultural life. This is possibly the first time that the leaders have focused on soft power or cultural power and it signals a significant change in China's future road of development.
It seems an opportune moment to talk about soft power as the economy itself seems to be softening. The easy growth that China has enjoyed over the past 30 years is possibly at the edge of its assured trajectory. it would seems that the regular growth and improvements in living standards that china has been able to achieve for its people may not be possible to sustain in the same way. And that China needs to look beyond the obvious opportunities to look for growth. It also perhaps signals a change for people who are looking for gold in China - whether they are entrepreneurs or investors - that they also need to look beyond the obvious opportunities. Newton's law of Chinese trends
The fact is that the growth model through which China has astounded the world in the past 30 years has resulted in some extraordinary contradictions and is facing serious challenges. These contradictions can be possibly summed in what I am calling as Newton's law of Chinese consumer trends - which says that for every consumer trend that you can see in China there is an equal and opposite trend.
So while China has much to celebrate about - it has become, for instance, the second largest economy in the world - it overtook Japan last year to achieve this position - it still has a long way to go. It needs to try to improve the lot of the huge rural population, try to control the yawning gap between the rich and the poor and what has been very salient recently try to provide affordable housing for its urban consumers (the young men desperately need them and no respectable prospective mother-in-law will give her daughter’s hand in marriage to a boy with no house!)
So surely we are talking about the second largest economy in the world, but one which still ranks 121st in terms of per capita gross national income of $4200. Experts quibble about whether China is the second largest luxury market in the world or is already the largest luxury market in the world - those who belong to the later school opine that as a large number of overseas luxury purchases by the Chinese are unaccounted for, China is already the largest luxury market in the world. Other experts like to count the number of rich individuals. According to one estimate there are already more that a million dollar millionaires in China. But what the experts don't dispute is that there are still nearly 700 m Chinese living in rural China with a per capita income of less than a 1000 dollars a year. Clearly this would imply that there is a huge market for reasonably priced mass products - which there is - happily co-existing with market for luxury and premium products.
Similarly the youth marketers are very excited about China - as there are a large number of youth - 222 million Chinese are below the age of 15. No wonder that for Nike, China is already the second largest market in the world. Coke recently announced that it will invest $ 4 billion dollars in China from 2012 to 2014. At the same time there are 178 m Chinese who are aged 60 or older.There should also be a thriving grey market in China The mega trends and the resulting opportunities
Looking at all these contradictions together we have identified the following key broad mega trends in China and the key opportunities that these trends point towards.
|1. Rapid urbanization
||Market in smaller towns and cities
|2. Disappearing demographic dividend.
||Grey market, health services & travel and leisure |
|3. Gender imbalance
||Market for housing, luxury and premium products |
|4. Inexorable march of the Internet
|5. Re-balancing of the economy
||Increased emphasis on domestic consumption and particularly services |