China's Consumers

China's Consumers

Understanding trends among Chinese consumers is a key factor in assessing the Chinese equity market.

Chinese consumers are playing an increasingly prominent role in their country’s economy – as a result, what they earn and where they spend it is coming under even closer scrutiny.

The most recent data on consumers shows a healthy picture over the last five years, with income and expenditure both rising steadily. But it’s important to go beneath the headline figures to get a fuller picture of China’s consumption story.

Since 2013, per capita disposable income has risen to 28,228 yuan, a nominal compound annual growth rate (CAGR) of 9%.[i] However, this rise masks a potentially significant change.

While the top and bottom quintiles have seen a relatively steady growth rate over the last five years, the middle-income grouping, which comprises 60% of the population, saw significantly lower growth in 2018 (see red line in chart below).


Growth in disposable income - by population quintile


Source: National Bureau of Statistics press releases

Taking a longer-term view, this would appear to be a reasonably steep decrease in growth rate, which proves a potential headache for the Chinese government and its plans for economic growth. While low incomes could be given a boost via social-security payments, the middle-income bracket is harder to influence centrally.

Chinese Middle Income Earners

This needs to be seen within the wider context of the slowdown in GDP growth. Rather than everyone sharing in the pain, it is clear that the middle-income group has borne the brunt of China’s slowdown over the last year. Although the reasons for this are complex and – if sustained – may have wider political implications, such analysis can help to inform our investment research.

However, the high-income group of consumers continues to see strong growth in disposable income. Not only that but it also accounts for just under 50% of total spending power in China. Consequently, companies that are disproportionately exposed to this group can offer more sustainable sources of growth.

One area popular with high-income consumers is premium cosmetics, notably Korean beauty products. These have the dual advantage of being more suitable for typical Chinese skin tones relative to Western alternatives, while also benefiting from a perception of being higher-quality relative to domestic brands.

Consumers are shifting where they spend their money

Understanding the changes in how disposable income is spent can also aid understanding of potential investments. Expenditure has grown broadly in line with income, at a CAGR of 8.5%, while consumer prices have increased by a CAGR of 1.8%.

And there are some clear trends in spending patterns emerging. Two categories, have seen a meaningful increase in proportionate spending. China’s property market has seen prices rise substantially in recent years and healthcare/medical spending aided by beneficial government policies, are both now a larger part of the spending mix.

Meanwhile transport and education, culture & recreational spending have also seen larger increases.

At the same time, spending on staples – food, tobacco, alcohol and clothing – have grown at a slower rate and declined from 38.0% of total spend in 2015 to 34.9% in 2018.

Our bottom-up approach is based on company fundamentals rather than a top-down sector approach. This means that, even in those sectors which are challenged, we are able to find good examples of companies experiencing sustainable growth.

[1] Source: All data from China Statistical Information Network,