April 2017

Research Institute
Thought leadership from Credit Suisse Research
and the world's foremost experts

CSRI Special Report:

The Chinese Consumer in 2017
 Introduction
Editorial
We are delighted to present a special report on A striking feature from the findings of our sur-
current consumer trends in China – the first of vey suggests that a "conscious" consumer is
its kind. This report draws from Credit Suisse developing in China and other emerging econo-
Research Institute’s annual “Emerging Consumer mies, focused on a more active, healthy lifestyle
Survey” and aims to provide a unique insight into and one engaged with the sharing economy. The
the profile of spending patterns and preferences need for a healthy lifestyle is evident as healthcare
of Chinese consumers, based on interviews con- spending looks set to increase rapidly otherwise
ducted by market research firm Nielsen on our and we estimate that China could be facing
behalf. healthcare costs of USD 2.3 trillion by 2030, up
With a population of 1.3 billion and total annual from USD 611 billion in 2015 based on our esti-
consumption of USD 4.4 trillion, China has been mates. The relaxation of the one-child policy might
at the heart of growth in the emerging world. also underpin the shift toward a more conscious
China's competitive position looks set to rise fur- lifestyle, with 25% of respondents planning to
ther as economic growth in China is forecast to have more than one child. In addition, with an
remain well above that of the USA and Europe, estimated one billion consumers yet to go online
and with total spending on research and develop- across our surveyed countries, the role of E-com-
ment reaching around USD 400 billion annually. merce within China continues to display solid
All of this should allow real retail sales in China to growth, with the online market expected to ac-
grow at over 10% per year with consumer spend- count for 25% of total retail spending by 2025.
ing contributing more than 50% of GDP growth. In China, the “emerging” consumer is part of a
Against this background, our report highlights "rebalancing" act. This is firstly a rebalancing of
those areas of Chinese consumer spending that the mix of growth from investment to consump-
are most likely to show the greatest momentum tion, and secondly a rebalancing of the mix of
going forward. spending from staple to discretionary spending as
The survey results show that the Chinese con- GDP per capita rises. Discretionary categories
sumer remains in the top three of our emerging such as sports shoes, holidays and fashion display
consumer scorecard, closely behind India and the strongest purchase intentions across the
Indonesia. The Asian economies boast the most emerging countries with foreign holiday intentions
optimistic outlook for the future with more than in China displaying positive momentum. Spending
40% expecting an improvement in their personal on travel and entertainment in China is booming
finances in the next 12 months. While some of and reached over 10% of household income in
China's consumer confidence readings have this year’s survey.
softened in the past twelve months, we would We hope you enjoy reading our first in-depth
highlight the very sharp rise in house price expec- study into the emerging consumer in China.
tations, which is highly relevant to the Chinese
economy. For instance, 51% of respondents
expect local property prices to increase over the Helman Sitohang
next 12 months. CEO Asia Pacific, Credit Suisse

2 _ Consumer Behavior in China

 02 Editorial

04 The Chinese consumer in 2017

04 The mood of the moment

08 What's hot and what's not?

10 The lifestyle upgrade in China

12 A growing healthy lifestyle

14 Relaxation of the one-child policy

is important

15 A conscious decision to buy

premium over mass

15 Smartphones are the exception

– from Apple to low-cost local phones

17 The Chinese e-commerce market

17 Online players may face greater

competition

18 Online platforms react by focusing

on technology and exploring
collaborations with offline retailers

19 The outlook for the Chinese

consumer

20 The Chinese consumer through a

macro lens

22 About the survey

22 Imprint

23 Disclaimer
Cover photo: shutterstock/Sean Pavone

For more information, please contact:

Richard Kersley, Head Global Thematic Research,

Credit Suisse Investment Banking,
richard.kersley@credit-suisse.com
Michael O’Sullivan, Chief Investment Officer,
International Wealth Management Division,
shutterstock/testing Credit Suisse,
michael.o’sullivan@credit-suisse.com

Consumer Behavior in China_3

The Chinese consumer in 2017
In this special edition of Credit Suisse Research Institute’s Emerging Consumer Survey 2017 1,
we focus on the consumer in China and the results of the circa 2,500 respondents that we
surveyed. The message is one of robust spending. China remains at the forefront of growth
in the emerging world and remains ranked in the top three of our survey, with consumers
displaying a shift toward discretionary categories of spending.

Thematically, the consumption story in China is The mood of the moment

proving to be the clearest representation of the
broader megatrend of a changing mix from staple As we look at the average readings across the
to discretionary spending and "trading up," with the survey, the picture is one of broadly improving
role of technology and e-commerce a powerful sentiment when compared to our 2016 report,
overlay. We set out details of the e-commerce which had been struck against a backdrop of weak
dynamic later in this report, but we also focus in on currencies, weak stock markets and a tougher
the nature of the ongoing "lifestyle" change and economic environment globally, not least a growing
upgrade in spending that is at work. slowdown in China. Tumbling commodity prices
We find a direct link to the "conscious consump- stemming from the latter were compounding issues
tion" theme highlighted in the full publication (i.e. for the commodity exporting countries in our survey
healthier food consumption, increased exercise – Brazil, South Africa and Russia.
/sports activity, declining momentum in alcohol We have seen many of these pressures abate
/cigarettes). An added dimension to the changing since then and negative sentiment ease accord-
lifestyle of the Chinese consumer is the relaxation ingly. In Table 1, we show the aggregate readings
of the one-child policy. We see positive implications for questions across the survey that assess the
for key consumer end-markets such as sportswear, "mood of the consumer." The questions on per-
children’s wear, home improvement, appliance sonal finances and the judgement as to whether
manufacturers and education/healthcare. In con- now is a good time to make a major purchase have
trast, local beer and instant noodle brands are most all improved, and concerns about future inflation
vulnerable as the consumer trades up. have moderated. Income momentum is a weak
point. 2016 was a poor year with the majority of
survey respondents reporting falling incomes.
Hopes of a recovery do exist for 2017, although
in modest terms.

Table 1
Survey sentiment indicators average readings
Personal finances Inflation expectations Good time to make a Income expectations Income change in last
major purchase 12 months
Indicator Net balance, better vs. Net balance higher vs. Net balance, excellent Net balance increase vs. Net balance increase vs.
worse lower time vs. bad time decrease decrease
2016 19.6% 39.3% –10.4% 19.1% -4.2%
2015 15.3% 46.4% –13.0% 24.5% 2.7%
2014 25.5% 46.1% –7.4% 31.3% 10.3%
Source: Emerging Consumer Survey 2017

See “About the Survey” on page 22

4 _ Consumer Behavior in China

Figures 1 to 5 break the variables down by country
Figure 1: Net percentage of respondents replying "Yes" to "Is now a good time
and show how they feed into our summary score- to a make a major purchase?"
card below. We would highlight the following: First,
20
the Asian economies stand out best with regard to 10
the benchmarks of personal finances and the 0
judgement of whether now is a good time to make -10
a major purchase; China scores second best in this -20
-30
regard.
-40
Second, income momentum has been an Asian -50
phenomenon, with Latin America a marked con- -60
trast. Looking ahead, while income expectations India China Indonesia Mexico South Russia Turkey Brazil
Africa
in the other Asian countries remain robust (this is 2014 2015 2016
certainly true for China) relative to other survey
countries, we do see a marked drop in sentiment Figure 2: Net percentage of respondents expecting an improvement in their

about future incomes in India after the rapid rise in personal finances in the next six months
60
2016's survey. The demonetization event may be
50
an influence here, although our Indian analysts also
40
reflect later in the report downward pressures on
30
agricultural incomes among low-income consumers.
20
Our Emerging Consumer Survey Scorecard 10
draws these factors together in a very simple 0
manner to provide an overall assessment of the -10
mood of consumers in each country. For each India Indonesia Brazil China South Mexico Russia Turkey
Africa
question, we rank each country relative to the 2014 2015 2016
survey countries as a whole. Each factor is given
an equal weight, although the two income ques- Figure 3: Net percentage of respondents expecting inflation to increase in the
tions are treated as one factor, with the future next 12 months
/past income questions given a 50:50 weight to 70
60
form an overall ranking. We then take an average
50
of the rankings across the questions to provide a
40
composite score.
30
Owing to higher inflation expectations coupled
20
with low income expectations, China slipped to third
10
place in our Scorecard after India and Indonesia.
0
Overall, Chinese consumers are still willing to spend India Turkey Brazil Russia China Indonesia Mexico South
given high job security, a low unemployment rate 2014 2015 2016
Africa

and stable income growth. A net 6% of Chinese

respondents stated that "now is a good time to Figure 4: Net percentage of respondents who expect household income to
make a major purchase", versus –10% for the increase over the next 12 months
survey average. However, China's 6% in 2016 70
60
was consistent with 2015, but was lower than its
50
9% and 15% in 2014 and 2013, respectively.
40
30
20
10
0
-10
Indonesia Brazil China South India Mexico Russia Turkey
Africa
2014 2015 2016

Figure 5: Net percentage of respondents who have seen household income

increase over the last 12 months
40
30
20
10
0
-10
-20
-30
-40
Indonesia China India South Turkey Russia Mexico Brazil
Africa
2014 2015 2016
Source Figures 1–5: Emerging Consumer Survey 2017
Consumer Behavior in China_5
Table 2

Emerging Consumer Survey Scorecard 2017

Rankings (6−12-month Personal Inflation Time for a Household Income Rank
horizon) finances expectations major income history
purchase expectations

India 1 1 1 5 3 1 

Indonesia 2 6 3 1 1 2 

China 4 5 2 3 2 3 

Brazil 3 3 8 2 8 4 

South Africa 5 8 5 4 4 5 

Mexico 6 7 4 6 7 6 

Russia 7 4 6 7 6 6 

Turkey 8 2 7 8 5 6 

Source: Emerging Consumer Survey 2017

A strong personal income outlook underpins this Based on this metric, optimism toward the hous-
outlook as Figure 8 reflects, with high-income con- ing market is returning to the highs of 2013, which
sumers expecting the strongest expansion of dispos- is also apparent in the fact that 23% of respond-
able income. What is key to the pattern of spending, ents plan to purchase a property in the next two
however, is the profile of this consumer. As we have years, i.e. 4% more than the number in 2015.
highlighted in previous surveys, it is the younger age
cohorts that occupy this higher-income group. It is
this young demographic where the purchasing power
lies and drives the pattern of spending. These are the
consumers reflecting the greatest confidence in their
personal finances.
The outlook for the property sector (including
home improvement and appliances) remains robust
in our view. For example, 51% of respondents
expect property prices to increase in the next 12
months compared to 40% in 2015 and just 33% in
2013 (Figure 10).

Figure 6 Figure 7

State of personal finances over the next six months Consumer confidence indicators

Balance better vs. worse Net balance

50% 50%

40%
40%
30%

30% 20%

10%
20%
0%
10% -10%

-20%
0% Personal Inflation Income Income Good time to
< 2500 3500 4500 5500 6500 7500 9000 12500>15000 finances expectations change in last expectations make a major
Income (RMB) This survey average 12m purchase
China Average
Last survey average

Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

6 _ Consumer Behavior in China

Figure 8

Nominal growth in household income

Nominal growth (%) in household income – next 12 months vs. last 12 months
7%

6%

5%

4%

3%

2%

1%

0%
< 2500 3500 4500 5500 6500 7500 9000 12500 >15000
-1%

-2%

Next 12 months Last 12 months Income (RMB)

Source: Emerging Consumer Survey 2017

Figure 9

Age and corresponding income levels in China

10500
Average monthly income (RMB)

10000

9500

9000

8500

8000

7500

7000

6500

6000
18-29 30-45 46-55 56-65

Source: Emerging Consumer Survey 2017

Figure 10
51% respondents expect local property prices to increase in the
next 12 months
%
100

80

60

40
58 62
49 51
20 40
33

0
2011 2012 2013 2014 2015 2016

Increase Same Decrease

Source: Emerging Consumer Survey 2017

iStock/superjoseph

Consumer Behavior in China_7

Figure 11 What's hot and what's not?

Purchase intentions this year versus consumption in the last year Whereas the Scorecard focuses on country compari-
100 sons, we illustrate in Figures 11 and 12 the pattern of
Consumers that intend to buy or increase spending

90 spending by category across our countries. Figure 11

80 charts the intention to spend more on an item (y-axis)
70 Fashion relative to those who own or have bought the item in
60
Holidays the last year (x-axis). Figure 12 again charts the
Perfume spending intentions, but compares the same reading
(%)

Dairy
50
Sports shoes
Bottled water
with a year ago to reflect the effective momentum of
40
Cosmetics Carbonated drinks increases (not necessarily reductions in absolute
30
Jewelery
Education Smartphones terms).
20 Foreign Beer
Watches Cars
Property Discretionary categories such as sports shoes,
holidays Spirits
LCD TV
10
Tablets Notebook PC holidays and fashion show among the strongest
Mobile phones (basic)
0 intentions. Of these, holidays particularly stand out
0 20 40 60 80 100
Desktop with positive readings having increased versus a year
computers
Consumers that own or have bought each item (%) ago. However, we note that holidaying remains a
domestic phenomenon. Foreign holiday intentions re-
Source: Emerging Consumer Survey 2017 main weak. China is the exception, showing genuine
momentum in foreign holidays. In fact, the Chinese
tourist is now becoming a more important interna-
Figure 12
tional traveler than the Russian tourist. We believe the
Spending intentions versus momentum (2016 vs. 2015) strength in the sports shoes category (and weaker
markets in the category of alcohol) fall under the
theme of healthy living, on which we focus on in more
Momentum % (2016 vs. 2015)

detail in the full publication of the report. The fact that

6
LCD TV
dairy is the strongest staple category tells the same
Holidays
story in our view.
4
Education On the weak side, a category that stands out is
2
Desktop computer Property smartphones. The market still continues to grow, but
Foreign holidays Cosmetics
Jewelry
Cars
Perfume
ownership rates among consumers have risen dra-
Notebook PC
0 Tablet
Sports shoes
matically (70% of respondents either own or have
Mobile phone (basic) Watches Dairy bought one in the last year) and the momentum is
-2 Carbonated drinks weakening accordingly. Smartphones display the
Beer Fashion
Spirits
 Smartphones*
Bottled water weakest momentum of all our categories as shown in
-4
0 10 20
(-19.6 momentum)
30 40 50 60 70
Figure 12.
Spending intentions We would stress that the question we are
measuring is "do you intend to spend more on
Source: Emerging Consumer Survey 2017 smartphones?" so that lower momentum can reflect
trading down to lower price points rather than
necessarily lower volumes in every instance. How-
Figure 13
ever, our survey has equally proved to be some-
Percentage of respondents owning a smartphone tracked against
thing of a barometer for market size and shipments.
smartphone shipments (China)
In that respect, Figure 13 suggests a country such
140000 100%
as China is potentially running out of headroom as
120000 90% an end-market for shipment growth. Moreover, as
we explore in the full publication of the report, this
100000 80%
maturity in the market is coinciding with more
80000 70% robust challenges from local smartphone makers in
60000 60%
China, with their brand recognition improving. There
is a legitimate reason to expect significant pricing
40000 50%
risks to emerge against such a backdrop for the
20000 40% international players. (We provide a disaggregation
of the spending patterns by category and country in
0 30%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Appendix 1 of the full publication together with a
10 10 11 11 12 12 13 13 14 14 15 15 16 16
breakdown by age. The role of the younger con-
Smartphone shipments ('000) - lhs
sumer in consumption patterns has been a theme
% of respondents who own a smartphone - rhs
that we have tracked over time).
Source: Emerging Consumer Survey 2017

8 _ Consumer Behavior in China

iStock/monkeybusinessimages Consumer Behavior
Consumer in in
Behavior China_9
China_9
The lifestyle upgrade in China
Chinese consumers are shifting their pattern of spending to discretionary categories. Observing
monthly spending by category, we find that the Chinese are spending less on housing and food,
but more on travel and entertainment than their emerging consumer counterparts.

China has seen a rapid acceleration in entertainment It is clear that, as consumers become wealthier,
spending among our respondents relative to a more they want to upgrade their lifestyles and spending
stable trend in expenditure on food (Figure 2). Food on more large ticket items that have longer life
expenditure now consumes 17% of the monthly spans versus the traditional fast-moving consumer
income of our Chinese respondents versus 19% in goods with a low ticket size. The above behavior
2011. Travel and entertainment now represent 11% change is supported by higher income as well as
of monthly incomes. The combination of a more the expectation of higher household income in the
conscious lifestyle coupled with relatively strong next 12 months. Meanwhile, the generation born
readings for spending intentions toward major-ticket between 1985 and 1995 has now grown up to
items sheds light on the following readings from this become 20–30-year-olds, and we see this relatively
year's survey. affluent young group replenishing China’s future
Consumption penetration was mixed in 2016 middle class, expecting it to contribute 35% to
versus general growth trends in most categories in China's total consumption in the next five years.
2015. Consumers are spending more on big ticket Online shopping penetration remained relatively
items and services such as education, cars, property stable in 2016, with overall internet access pene-
and mobile phones, while the spending momentum tration down 1 p.p. to above 80% of our respond-
is softening for many staples categories such as ents. However, momentum in online consumption
dairy, cosmetics, carbonated drinks, spirits and via mobile/smartphone continues to grow. Penetra-
beer. tion of both smartphone and mobile phones was up
2 p.p. in 2016 to above 90% of the respondents.

Figure 1 Figure 2
Food versus entertainment expenditure in China in-
Monthly spending in China
dexed to 2010
Chinese monthly spending Overall survey average China, expenditure in USD PPP (2010=100)
35%
160
30%
150
25%
140
20%
130
15%
120
10%
110
5%
100
0%
90
Healthcare

Clothing
Food

Autos

Property & Local

HPC
Entertainment

Savings

Other
Public Utilities

Education
Housing &

Travel &

80
Taxes

70
60
2010 2011 2012 2013 2014 2015 2016
Food Entertainment

Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

10 _ Consumer Behavior in China

 We estimate that online sales will grow by over Figure 3
20% YoY in 2017–2018, accounting for 15%–
20% of China's total retail sales in 2017 (up from Spending momentum and market penetration
10% in 2014). We explore the role of e-commerce
in further depth later in this report. 4

Recorded spending in 2016 vs. 2015

Mobile phones
The majority of Chinese allocate their savings to Extra education Cars
2 Smartphone
bank accounts and life insurance. In 2016, we see
that less Chinese people allocated their savings to Holidays Property
0
the stock market compared to 2015 after the A
Internet access
share market bubble. What continues to set the -2
Chinese consumer apart from its emerging market Cosmetics Dairy
peers is the savings ratio, which dropped slightly -4
Carbonated
this year, but, at 30%, remains the highest of any
drinks
of the emerging consumers in our survey. Much of -6
the spending we are describing is thus driven by in- TV Spirits
-8
come. Moreover, savings themselves are cautiously
allocated – bank accounts (47.9%), life insurance Beer
-10
(13.3%) and state treasury bill-bonds (3%) – while
stock-market investments dropped 1.7% to 8.5%. -12
After a very volatile stock market in 2016, Chinese 0 20 40 60 80 100
consumers understandably seem to prefer safer in-
2016 respondents that own or have bought each item (%)
vestments for capital preservation. The absence of
a social safety net and the need for healthcare pro-
Source: Emerging Consumer Survey 2017
vision demands precautionary saving and explains
why the level of saving has remained so high
throughout the life of our survey, and why it seems
unlikely to change in a hurry.
Urbanization is a key factor reshaping consumer
Figure 4
preferences and demand for travel, with urban
respondents in China seven times more willing to Chinese holidaymakers are looking to travel internationally
go on an international holiday in 2016 than their
fellow rural citizens. As the country approaches
average emerging-market urbanization levels, it is +10
experiencing increasing demand for international
holidays. The results of our survey highlight that +8 Russia
China has the largest proportion of respondents
travelling internationally and the greatest momen- +6
tum in willingness to travel internationally. In addi-
+4
tion, China has overtaken Russia as the emerging
China
country where most respondents are planning to go
+2 Mexico
abroad next year.
-
-4 -2 - +2 +4 +6 +8 +10
Brazil
-2
Turkey
-4

-6

Source: Emerging Consumer Survey 2017

Consumer Behavior in China_11

 Figure 5 A growing healthy lifestyle

Longevity in EMs is increasing, causing healthcare costs to rise In addition to buying a house (clearly a long-term
conscious commitment), we also find support from
35%
our survey that Chinese consumers have started to,
Percentage of population aged 65+

Bubble size proportional to

size of 2035E 65+ population Japan Germany
30% or intend to lead healthier lifestyles. Close to 40% of
Korea consumers intend to increase the time spent on play-
25%
UK ing sports, while almost 80% agree that they have
(2035E)

China USA
20%
Russia
started to eat more healthily. The need for a healthy
15% Brazil lifestyle is evident as healthcare spending looks set to
Turkey
increase rapidly otherwise, with an ageing population
Malaysia
10% India a key factor that is likely to increase the pressure on
Saudi Arabia
5% healthcare costs.
In order to provide an estimate of the potential
0%
0 10 20 30 40 50 60
healthcare costs that countries in our survey might
GDP per capita (2015, '000 USD PPP) face, we have run a simple scenario. Assuming
Middle East Europe Asia Americas Africa that total healthcare costs increase to developed
market levels (approximately 10% of GDP) and
Source: Emerging Consumer Survey 2017 assuming average GDP growth rates of approxi-
mately 4%–5% for the next 15 years, we forecast
Figure 6
that China, for example, could be facing
healthcare costs of USD 2.3 trillion by 2030, up
Total healthcare spending (USD bn) to grow quickly in a no-
change scenario from USD 611 billion in 2015 (Figure 6). It is our
belief that these costs are unlikely to be covered
2500 18%
2288 either privately or publicly, which in our view in-
16% creases the likelihood that consumers will have to
2000 14% start leading healthier lifestyles. We show more
12% detail on this topic in our chapter on “conscious living”
1500 in the full publication of the report.
10%
Owing to the potential healthcare costs
8%
1000 described earlier, we believe that emerging market
6% consumers might want to/have to adopt a more
611
502
500 4% conscious lifestyle. We use our survey to review
276 238
98 148
207 178 129 2% how consumers feel about products and services
94 72 39 49 28
25 related to environmental awareness (e.g. car
0 0%
China India Brazil Indonesia Russia Mexico Turkey Sth.Africa usage), nutrition, personal care and more active
2030E 2015 CAGR (r.h.s.) lifestyles in order to judge whether a conscious life-
style is being adopted.
Source: Emerging Consumer Survey 2017 A more conscious consumer should also imply
that the consumption of “bad” food products
declines. External sources such as Nielsen's Global
Figure 7
Health and Ingredient Sentiment Survey (August
Percentage of respondents who say they follow a special diet
that limits or restricts specified foods or ingredients 2016) suggest that consumers across emerging
countries are much more focused on what they
45% eat than consumers in developed markets. For
40% example, almost 40% of consumers in the Asia-
35% Pacific (APAC) region follow a low-fat diet (nearly
twice the level seen in Europe or North America).
30%
While not as extreme, we also observe a higher
25%
uptake for low sugar and low-carbohydrate diets
20% across Latin America, Africa and APAC than in
15% Europe or North America.
10%

5%

0%
Low Fat Sugar Conscious Low Carbohydrate Wheat/Gluten free
Latam Asia Pacific Africa/MENA Europe Nth.America

Source: Nielsen, Global Health and Ingredient Sentiment Survey, Q1 2016

12 _ Consumer Behavior in China

 Figure 8 Figure 9
Year-on-year change in share of consumers who had Percentage of consumers eating less sugary or “non-
bought these products in the past 3 months (%) healthy” products and eating “healthier” options
4
90
2
0 80

-2 70

-4 60
-6
50
-8
40
-10
30
-12
-14 20
Brazil China India Russia South Turkey Mexico
Africa 10

Beer Spirits Cigarettes 0

Brazil China India Indonesia Russia Turkey Mexico
Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

We reviewed our survey results to see if they In addition, we also note that this trend does not
also suggest that a more healthy approach is appear to be ”youth-led” as momentum among mid-
adopted by our consumers, which is indeed the dle-aged consumers appears to be as negative as
case. For example, consumption of beer, spirits and that of the “millennials” (Figures 10 and 11).
the use of cigarettes is down year-on-year across When asking consumers whether they had been
most of the countries surveyed (Figure 8). At the buying sportswear in the past three months, our sur-
same time, we also notice that a majority of con- vey found that the answers ranged from just approxi-
sumers in all the countries with the exception of mately 15% in Indonesia to more than 60% in China
Russia have started to switch from “less-healthy” or (Figure 12). At the same time, however (and with the
sugary products to “healthier” options (Figure 9). exception of Chinese consumers), we found that a
When reviewing consumption patterns of unhealthy greater percentage of consumers intend to spend
products by age group, we find that the trend away money on sportswear in the future, which clearly
from unhealthy products appears to be most broad- supports a more active lifestyle in 2017 compared
based in China, Mexico and Turkey. to 2016.

Figure 10 Figure 11
Young consumers in China, Turkey and Mexico have …we observe the same change for the middle-aged
reduced consumption of unhealthy products most over consumers in these countries. Russian consumers
the past 12 months (%) … appear to have a different lifestyle (%)
18–29 year olds
Momentum 2016 vs 2015

6 56–65 year olds

Momentum 2016 vs 2015

India 10
4
India Russia Brazil Russia
2
5
0
-2 0
Mexico
-4
China Turkey Turkey
-5
-6
Turkey China China
-8 Mexico
Turkey -10
-10 Turkey China
China China
Mexico Mexico
-12 Turkey Mexico
-15
-14 Mexico

-16 -20
0 10 20 30 40 50 60 70 0 10 20 30 40 50 60

Purchases in the last 3 months Beer Cigarettes Spirits Purchases in the last 3 months
Beer Cigarettes Spirits

Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

Consumer Behavior in China_13

 Figure 12 Figure 13
Share of consumers that buy sportswear Net percentage expecting to spend more time playing
sports in the next 3 months: China
70
% that intend to spend money on sportswear

60
South Africa Brazil
60
Turkey
50
China
50

Mexico 40
40
Russia
India
30 30

Indonesia
20
20

10
10
0
0 10 20 30 40 50 60 70
0
% that spent money on sportswear 18-29 30-45 46-55 56-65

Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

The fact that Chinese consumers score slightly Relaxation of the one-child policy is important
lower on this comparison may be due to the already
relatively high penetration of sportswear in China. This age profile for income growth is particularly rel-
Given the government's focus in China on expand- evant given the relaxation of the one-child policy by
ing the country’s sports industry, we asked Chinese the Chinese government in 2013, which is already
consumers whether they intend to spend more time starting to show significant results. For example,
playing sports. Not surprising perhaps is the fact we note that the birth rate in China reached almost
that the younger generation has the strongest ap- 13‰ last year, a level not achieved since 2001.
petite to do so. Of the 18–29 age group, 55% The number of newborn babies increased 8% year-
indicated a desire to spend more time on sports, on-year in 2016, compared to –1.9% in 2015. We
with just 3% indicating the opposite. Even among do not believe that these 2016 birth statistics will be
the more senior citizens (aged 56+), we found that an anomaly given that our survey suggests that
almost 20% want to become more active, with just 25% of consumers plan to have more than one
2% stating the opposite. Badminton (23%) and child. Clearly, a rising birth rate has its implications for
athletics, mostly running (13%), are the most the pattern of consumer spending. The fact that the
popular sports in China. consumer purchasing power lies with "young parents"
provides added confidence in the end-market outlook
for areas of child-related spending.

Figure 14 Figure 15
China's birth rate reached levels last year not seen since 25% of consumers already indicate that they wish to
2001 have more than one child
‰ More than 1
Not sure
21% child
13.5 25%

12.95
13

12.5

Not any child

12 12%

11.5

11
2001 2003 2005 2007 2009 2011 2013 2015 Only 1 child
42%
Source: Emerging Consumer Survey 2017 Source: Emerging Consumer Survey 2017

14 _ Consumer Behavior in China

 As Chinese families start to expand, we would Figure 16
expect the parents to slowly adopt a more conscious 30% of respondents bought more expensive cognac brands in the
lifestyle based on broader consumption considera- last 12 months
tions. By this, we mean that consumption patterns
I buy cheaper brands
are likely to shift to those areas that allow these 4%
parents to not only support their existing related
families (e.g. parents and grandparents), but also
their growing numbers of children. In this regard, we
note that when asked how consumers intend to I buy more
expensive brands
spend incremental disposable income, only 15% 30%
said they will spend it on themselves, whereas 41%
expect to spend it on their children and 40% on their
parents. The inclination to direct spending to their
children amid rising birthrates underpins the childcare-
related end-markets. An added context to the large I continue to buy
proportion of spending going to the elderly is meeting the same brands
66%
healthcare bills that are difficult to afford given the
age and income distribution highlighted above. In this
Source: Emerging Consumer Survey 2017
case, the children and/or the government need to
step in to help fill the gap.
Figure 17
A conscious decision to buy premium over 71% of respondents would like to buy smartphones under RMB
mass 2,500 in the future
%
Our survey also suggests that Chinese consumers
45
are more likely to buy premium and or more expen-
40
sive versions of products rather than mass-produced
35
products. These show that positive purchasing
30
momentum in China was only seen for expensive
25
products (property, cars or jewelry) or "lifestyle"
20
products (sportswear, fashion). While the spirits
15
category is losing momentum, given that 30% of
10
consumers bought more expensive cognac brands,
5
we feel that this negative momentum is driven by
0
cheaper, lower-quality products.
CNY801 -

CNY1651 -

CNY2501 -

CNY3301 -

CNY4101 -
CNY800

CNY4900+
CNY1650

CNY2500

CNY3300

CNY4100

CNY4900
Up to

Smartphones are the exception – from Apple

to low-cost local phones
Source: Emerging Consumer Survey 2017
One product area where consumer spending inten-
tions are less obviously moving to premium is
Figure 18
smartphones. Among our respondents, 92% already
own smartphones, which is 2% and 8% higher than Smartphone brand purchasing intentions in China
in 2015 and 2014, respectively. However, 71% of
respondents prefer phones that cost less than RMB Total smartphone brands purchasing intentions
2,500, explaining why 52% of respondents think they 45%
will choose Android versus 24% expecting to choose 40%
iPhones in the next 12 months. We highlight the 35%
rising popularity of Chinese domestic brands such as 30%
Huawei and Xiaomi, driven by their value-for-money 25%
position in our section on emerging local brands in the 20%
full report. Domestic smartphone brands are on the 15%
rise. For the first time, the brand preference ex- 10%
pressed in China for Huawei has now overtaken 5%
Apple (Figure 18). 0%
2013 2014 2015 2016

Apple Huawei

Source: Emerging Consumer Survey 2017

Consumer Behavior in China_15

16_Consumer
16 _ ConsumerBehavior
Behavior inin China
China shutterstock/Asia Images Group
The Chinese e-commerce market
The rapid growth in e-commerce seen to date across the emerging economies we surveyed
has tended to be mainly beneficial for the pure online players. In our view, one of the reasons
for this is that brick and mortar retailers in global emerging markets are far less developed and
therefore have so far provided little competitive threat to online players. In the case of the Chi-
nese online market, this may be about to change and, if true, might also present a roadmap for
the other countries in our survey.

Online players may face greater competition Figure 1

Our Chinese retail analysts believe that typical Retail space (m2/1000 people)
offline consumer companies are starting to fight
back to regain online market share. Their focus is India 5
on improving offline-to-online (O2O) strategies and China 39
benefitting from consumers' increasing brand Argentina 50
awareness after several years of unsatisfactory Colombia 63
experience with e-commerce-only brands, which Brazil 63
Philippines 72
mainly compete on low prices and trendy designs,
Peru 79
but typically are of poor quality. Instead of seeing Mexico 92
e-commerce as a threat, consumer brands are now Turkey 113
making e-commerce an alternative channel to dis- Russia 121
tribute their products, which may even compensate Germany 181
Italy 228
for offline business.
Spain 245
The above trend is more obvious for consumer Netherlands 362
discretionary brands. We see a better O2O strategy Finland 413
for most of the listed companies as suggested by the Sweden 434
strong growth in their e-commerce business in 2016 Norway 926
(Figure 2). The consumer discretionary brands now US 2000
offer differentiated products ranging between online 0 500 1000 1500 2000 2500
and offline, have increased e-commerce marketing
budgets and are cooperating with leading platforms
Source: Emerging Consumer Survey 2017
like JD.com and Alibaba. In general, most of the top
ten best-selling products on Tmall/Taobao are sold
by leading offline brands. Consumer staples brands
are also embracing online platforms with more
resources allocated online, although competition
from online-only brands is quite limited here. Reasons
include a more consolidated end-market and the fact
that consumers remain cautious toward online-only
brands due to food safety concerns. Brands that
develop stronger e-commerce strategies should stand
out among peers and be able to expand market share
as consumers buy more online.

Consumer Behavior in China_17

 Figure 2 Online platforms react by focusing on tech-
The online market share for Chinese leading consumer brands is nology and exploring collaborations with of-
up year-on-year fline retailers

China's online retail platforms have significantly

25%
2015 2016E benefitted from the e-commerce boom over the
past decade, driven by a continued increase in
20% online shopping penetration and the improved
e-retailing infrastructure. In our view, leading e-
15% commerce platforms like Alibaba, JD.com, and
Vipshop have been increasingly enhancing the us-
ers' shopping experience from all aspects through
10%
intensive investment in big-data-driven technology,
as well as payment and logistics services. There
5%
are a number of factors that should allow the lead-
ing platforms to maintain their market presence
0% despite developments from offline retailers.

361 degree
Li Ning
Semir

Vinda

Home Appliance

Hengan
Anta

Heilan Home
Xtep
Dongxiang

Greater product variety: One of the key strengths

of online retailers is the wide variety of products
they can offer – from branded consumer products
to long-tail, uniquely designed selections that suit
different customer needs. More meaningfully, we
Source: Emerging Consumer Survey 2017 see online players increasingly broadening their
product selection toward high-quality, premium
goods such as imported food, wine, and cosmet-
ics, which are less accessible through offline
stores.
Figure 3
E-commerce continues to see strong growth with higher Improved shipping/payment services: To provide
penetration a more satisfactory online shopping experience,
JD.com and Vipshop have significantly strength-
9000 20% ened their in-house delivery capability through the
19.0%
17.6% 7'704 18% build-out of a large warehouse and logistic net-
8000
work, shortening delivery time and offering flexible
15.5% 16%
7000 6'463 shipping options at affordable prices. On the other
14% hand, Alibaba is teaming up with major third-party
6000 12.6% 5'156
12% logistic couriers in China to optimize fulfillment
5000 10.3% efficiency, leveraging its big-data-driven algorithm
3'803 10%
4000 7.8%
to provide real-time tracking information and
8% better route planning. The rapid development of
2'789
3000 5.6%
6% online and mobile payment services also contrib-
4.3% 1'892
2000
2.9% 1'188 4% utes to higher willingness to shop in the digital
2.0% 785 world.
1000 0.3% 0.6% 1.1% 263 461 2%
26 56
128
- 0% Better marketing knowhow: In terms of user
2016E

2017E

2018E
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

acquisition or improving repeat rates, we tend to

believe online players have more competitive
China online shopping GMV (Rmb Bn) As a % of Total Retail Sales (%)
advantages. Major e-commerce retailers leverage
big-data technology to improve search relevance
Source: Emerging Consumer Survey 2017
and generate more personalized recommenda-
tions, thus providing more effective online market-
ing services for merchants. We are seeing more
and more consumer brands shift their advertising
budgets to online channels as this helps to acquire
and retain customers.

18 _ Consumer Behavior in China

 Cooperate rather than compete: Looking ahead, The outlook for the Chinese consumer
we believe online players are also becoming in-
creasingly open to cooperation/strategic alliances The outlook for the Chinese economy in 2017
with offline retailers and brands rather than direct remains positive as we expect markets to stabilize
competition to leverage each other's resources and for the government to encourage infrastructure
and actively explore new forms of retailing to investment to meet target economic growth of
better drive consumer spending. Alibaba's invest- 6.5%. We maintain an optimistic view for the forth-
ment in the Intime department store chain and its coming year despite potential tariff increases on
alliance with China's retail conglomerate Bailian exports to the USA. Moreover, we do not see any
Group are good examples of the omni-channel obvious drivers overall for the consumer sector and
model that is reshaping China's retail segment. expect diverse performance in each subsector as
Another example of this would be Wal-Mart’s consumers continue to increase their spending on
announcement last year that it would be selling its lifestyle upgrades and health.
Chinese online business (Yihaodian) to JD.com
and taking a 5% stake in JD.com to cement the
strategic partnership.
While we do not underestimate the disruptive
potential that some of the offline initiatives may
have, we do believe that the online leaders in
China have ample opportunities to safeguard their
presence. Therefore, it is more likely that new
entrants or smaller players will have their returns
pressured most by a diversifying offline offering.

shutterstock/TonyV3112 ConsumerBehavior
Consumer Behaviorin in China_19
China_19
 Figure 1
EM8 consumer confidence (versus post 2010 range) The Chinese consumer
104

102
through a macro lens
100 To set alongside our feedback from the field, we provide
98 a snapshot of where the prevailing macro indicators for
the emerging consumer sit for each of the eight countries
96
(EM8) in the survey. While our survey indicators compare
94
Brazil China India Indonesia Mexico Russia S Africa Turkey
countries against each other, here we look at how each
Max Min -12m current country stands versus its own post-2010 historical range
Source: OECD Main Economic Indicators, Credit Suisse research on six consumer focused metrics. We establish a score-
Figure 2
card of relative strength. We also compare these country
scores with those of a year ago. Note that we would not
EM8 real retail sales growth (versus post 2010 range)
30%
expect the rankings to mirror our survey scorecard earlier
20%
given the differing methodology, although they do provide
10%
a sense of domestic momentum.
0%
On this macro scorecard, China and Indonesia offer
-10%
the most robust consumer environment against their own
-20%
history ranked in first and second place, respectively, up
-30%
from second and fifth place last year. Turkey and Mexico
Brazil China India Indonesia Mexico Russia S Africa Turkey follow in third and fourth place, respectively, with the for-
Max Min -12m current mer—this year's largest score decliner—down from being
Source: Thomson Reuters, Credit Suisse research ranked top last year, while Mexico retains not only its
Figure 3 ranking year-on-year, but almost exactly the same score.
EM8 real wage growth (versus post 2010 range) In fifth place comes India, down from third in 2016, while
20% South Africa, Russia and Brazil retain their sixth, seventh
15% and eighth positions in the rankings, respectively.
10%
1. Consumer confidence: While the latest local consumer
5%
confidence surveys reveal that only China, India and Indo-
0%
nesia are at levels in the more positive half of their post-
-5%
2010 historical ranges, there is nevertheless a significant
-10%
Brazil China India Indonesia Mexico Russia S Africa Turkey year-on-year improvement in confidence across the EM8
Max Min -12m current countries with the notable exception of Mexico and Tur-
Source: Oxford Economics, Credit Suisse research key (which underwent significant reversals). Measured
Figure 4 against their respective 7-year histories, China, Indonesia
EM8 real interest rates (versus post 2010 range) and India appear as the more optimistic surveys closest to
8% their post-2010 highs, while consumer confidence in
6% South Africa languishes at the weaker end of its 7-year
4% range.
2%
0% 2. Retail sales growth: Year-on-year real retail sales growth
-2% remained broadly stable across five of the EM8 countries,
-4%
while recording a noteworthy increase of 8 p.p. in Russia
-6%
Brazil China India Indonesia Mexico Russia S Africa Turkey (as the country recovers from a consumer recession deeper
Max Min -12m current than that during the global financial crisis) and of 6 p.p. in
Source: Central bank data, Credit Suisse research Mexico (the weakening of the currency has led to an ap-
Figure 5 preciation of US dollar remittances in peso terms). The sin-
EM8 private sector credit growth (versus post 2010 range) gle noticeable drop in the growth of real retail sales (by 6
p.p.) across the EM8 countries was in Turkey – mirroring
40%
the correction in confidence post the July 2016 attempted
30%
coup. Brazil, Russia and Turkey are the only three countries
20% in the EM8 where year-on-year real retail sales growth is in
10% negative territory – although Brazil posted only a modest 2
0% p.p. improvement from 2016.
-10%
Brazil China India Indonesia Mexico Russia S Africa Turkey
3. Wage growth: Wage growth (in year-on-year inflation-
Max Min -12m current adjusted terms) is positive across the EM8 countries –
Source: BIS, Credit Suisse research with the exception of Brazil (at –1.7%) – although for
South Africa this is marginal (just 0.4%). For China, India,

20 _ Consumer Behavior in China

Indonesia and Turkey, real wage growth remains at robust Figure 6
levels in the range of 5.0% to 6.1%, with China leading the EM8 real house price growth (versus post 2010 range)
pack, albeit at the lower end of its own 7-year range. 20%
Growth has maintained broadly stable levels (within 1.3 p.p.) 10%
for the EM8 group save Russia, which recorded a hefty 8.2
0%
p.p. acceleration to 0.6% from –7.6% in Q1 2016.
-10%
4. Interest rates: There has been a considerable fluctua- -20%
tion in real interest rates across the EM8 group of coun-
-30%
tries over the past year. Brazil (at 6.9%) and Russia (at Brazil China India Indonesia Mexico Russia S Africa Turkey
5.2%) have recorded real rate tightening of around 300 Max Min -12m current
bp and 180 bp, respectively, since last March – both on Source: BIS, Credit Suisse research
account of swift disinflation outpacing central bank eas- Figure 7
ing. Despite real rates for these two countries being now Emerging market consumer heat map
at the very top of their respective 7-year historical ranges
– typically anathema for consumption – there is ample Real retail Real Real Priv. sec. Real house
Consumer Average
scope for moderation in 2017. India and Mexico have Country
confidence
sales wage interest credit price Average
-12m
growth growth rates growth growth
also undergone a tightening in real interest rates (both by
China 55% 70% 69% 79% 51% 58% 64% 49% ↑
around 100 bp) since last March – the latter case due to Indonesia 67% 76% 58% 40% 13% 37% 49% 39% ↑
central bank measures to defend the peso. The only EM8 Turkey 4% 14% 59% 89% 36% 75% 46% 63% ↓
Mexico 2% 80% 24% 27% 59% 73% 44% 43% ↔
country to have undergone a significant decline in real
India 75% 35% 56% 14% 20% 49% 42% 48% ↓
rates is Indonesia (to 0.9%), although absolute levels for South Africa 25% 35% 18% 50% 15% 19% 27% 36% ↓
South Africa (0.4%), China (–1.0%) and Turkey (–2.1%) Russia 18% 9% 22% 3% 8% 6% 11% 15% ↓
Brazil 34% 8% 6% 1% 2% 2% 9% 13% ↓
are more stimulative.

5. Private sector credit growth: Only in Mexico among the Source: OECD Main Economic Indicators, Thomson Reuters, Oxford Economics, Central bank
data, BIS, Credit Suisse research
EM8 has private sector credit growth noticeably acceler-
ated over the past 12 months to 17% year-on-year at the
top of the country's 7-year historical range and the high- Emerging consumer macro scorecard
est among the EM8 group of countries. Mexico's credit to We consolidate these six consumer metrics into a scorecard
GDP of 42% is low for emerging markets and responding for the EM8 countries displayed as a heat map in Figure 7.
to a November 2013 package of financial reforms tar- For each metric, we calculate the current percentile position
geted specifically at stimulating credit growth across mul- from lowest to highest across the entire eight country 7-year
tiple sectors of the economy. In contrast, the pace of historical range. For real interest rates (where a high number
credit growth in Brazil, Russia and Turkey slowed mark- is indicative of consumer strain), we invert the percentile
edly since last March – all with a deceleration of more ranking. To achieve an overall country score in the heat
than 10 p.p. which, in the case of Brazil, has resulted in map, we calculate a simple average of the percentile ranks
no credit expansion over the year and the lowest rate in for the six metrics for each country for the current situation
the EM8. China, India and Indonesia have delivered re- and that from 12 months ago.
spectable growth of 15%, 9%, and 8%, respectively, but At an average of 64%, China appears to have the most
all toward the lower end of their post-2010 ranges. buoyant consumer environment among the EM8 countries.
Moreover, it has improved year-on-year from an average-
6. House price growth: At 6%, Turkey has registered the metric score of 49% last March. China scores particularly
strongest year-on-year real house price appreciation well for growth in real retail sales and wages, together with
among the EM8 countries – although this places price real interest rates. In second place, Indonesia, averaging
growth only mid-range for Turkey versus the past seven 49%, has also recorded a year-on-year improvement from
years, having slipped from 10% year-on-year 12 months 39%, propelled by consumer confidence and real retail sales
ago. In stark contrast, house prices in Brazil have depre- growth. In third place, Turkey, averaging 46%, has dropped
ciated by an alarming 20% over the past 12 months in from last year's strongest average score of 63%, by far the
real terms, the largest fall measured across the EM8 largest annual decline among the EM8 group, while Mexico
countries and at the extreme lower end of Brazil's 7-year at 44% is flat on the year. India, South Africa, Russia and
range. Russia (–12%) and South Africa (–2%) have also Brazil have all recorded year-on-year declines in their aver-
recorded real house price depreciation, but of a magni- age scores across the six metrics, with Brazil and Russia re-
tude that is mid-range historically. Mexico (+5%) and taining their positions as weakest and second weakest on
China (+3%) have also posted robust real gains in house the emerging market consumer heat map, respectively. The
prices, the former right at the top of its post-2010 range, Brazilian consumer appears particularly constrained by a
while house prices in India and Indonesia were broadly mixture of high real interest rates, unappealing real growth in
unchanged. wages and credit, and declining real house prices.

Consumer Behavior in China_21

 About the survey

The Credit Suisse Research Institute Emerging more complete view of the competitive consumer
Consumer Survey provides a granular analysis of landscape across emerging markets. The original
the profile, mood and behavior of consumers AC Nielsen was founded in 1923 by Arthur C.
across the emerging world, delivering unique in- Nielsen, Sr., who invented an approach to meas-
sights for investors on the key influences that are uring competitive sales results that established the
shaping the nature of consumer spending. This concept of “market share” as a practical manage-
report has been produced using market research ment tool. For nearly 90 years, they have ad-
gathered by The Nielsen Company, 14,000 face- vanced the practice of market research and
to-face interviews across eight emerging econo-
audience measurement for the benefits of their
mies of Brazil, China, India, Indonesia, Mexico,
clients in a constantly evolving marketplace.
Russia, Turkey and South Africa, representing an
Nielsen have a presence in approximately 100
aggregate population that is approaching four
countries, and hold positions within established
billion people and total consumption of USD 9.4
trillion. This has given the Credit Suisse Research and emerging markets. Their operating model
Institute the ability to conduct a consistent multi- is grounded in a simple, open and integrated
region survey while also incorporating questions approach that delivers a broad portfolio of services
specific to the countries surveyed in the report. and solutions for their clients. The Credit Suisse
Nielsen are a leader in data measurement and Research Institute would like to thank The Nielsen
information across a wide range of industries and Company for their invaluable assistance in this
regions. Their expertise has complemented the project.
analysis the Research Institute has conducted in
this report. Nielsen’s input has helped develop a

Imprint

PUBLISHER
CREDIT SUISSE AG

Research Institute
Paradeplatz 8
CH-8070 Zurich
Switzerland
research.institute@credit-suisse.com

AUTHORS

Alexander Redman Evan Zhou

Arun Sai Maria Bhatti
Brandon Vair Michael Shen
Carey Shi Raymond Ching
Eugene Klerk Richard Kersley

EDITORIAL DEADLINE

3 April 2017

22 _ Consumer Behavior in China

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Consumer Behavior in China_23

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CH-8070 Zurich
Switzerland
research.institute@credit-suisse.com
www.credit-suisse.com/researchinstitute