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China is projected to remain one of the world's
fastest-growing consumer markets by 2020, reaching $6.5 trillion in annual
private consumption even if annual GDP growth slows to 5.5 percent over the
next five years, according to a study by Boston Consulting Group and
AliResearch, the research arm of Alibaba Group Holding.
The country's official growth target is 6.5 percent
during the 13th Five-Year Plan (2016-20).
The projection was based on the assumption that
private consumption would total $2.3 trillion in the next five years and
increase by around 9 percent annually. Such growth would be comparable to
adding a consumer market 1.3 times the size of today's Germany or United
Kingdom.
The report identified three "great
forces" that are ushering in this transformation: the rise of
upper-middle-class and affluent households as drivers of consumption growth, a
new generation of more sophisticated free-spending consumers and the increasing
power of e-commerce.
E-commerce will become a far more important retail
channel, driving 42 percent of total consumption growth, with 90 percent of
that growth coming from mobile platforms.
The products fueling China's consumer boom will
also change. Services will overtake goods as the chief engine, accounting for
51 percent of total incremental consumption.
Demand for premier goods and services that enhance
a personal sense of well-being－such as healthy food, education and travel－rather than daily
necessities will accelerate.
"E-commerce is transforming China's
marketplace. Our research found that e-commerce actually stimulates new demand
in China by filling many needs that aren't being met by brick-and-mortar
stores," said Gao Hongbing, director of AliResearch. "Spending on
organic and imported foods by online shoppers has expanded eightfold in the last
three years, for example."
The report said that because of the nature of the
consumption changes, which are dramatic, the winning strategies of the past are
becoming outdated, and it's more important than ever for companies to make good
strategic decisions in the way they pick consumer targets.
"The days are over when demand in China for
everything seemed insatiable," said Youchi Kuo, a principal of BCG.
"Targeting the wrong income segment, playing in the wrong categories or
being unrepresented in the fast-growing online channel will be a formula for
slow growth."
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