China’s Skyrocketing Wealth and the Challenges of Common Prosperity

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Like many China-watchers, I’ve followed with interest as big numbers have rolled out of China over the years. GDP has ascended from $1.2 trillion to $14.7 trillion over the past two decades. The number of passenger cars on the road have shot up from around 75 million to 300 million since 2011. And China has added 500 million internet users over the same period.

But after years of being conditioned by soaring statistics, it has been some time since we were genuinely blown away by data from China. That was until we saw some recent data crunched by McKinsey. Between 2000 and 2020, Chinese consumers’ collective net worth has skyrocketed from $7 trillion to $120 trillion – scaling up almost 50% faster than GDP. China’s wealth accumulation, largely driven by property appreciation, has seen it account for almost a third of growth in global wealth to overtake the US for the top-spot.

Unfortunately, more than two-thirds of China’s wealth is held by the richest 10% of its households, and their share has been increasing. This doesn’t sit well with the top brass of the Chinese Communist Party, and has been a large factor behind the Common Prosperity drive which aims to see more people benefit from China’s growing affluence.

Few of Beijing’s catchphrases have impacted the way businesses and brands behave as swiftly as Common Prosperity. Singles’ Day was without its usual razzmatazz as a result and more recently, lifestyle platform RED has banned users from flaunting wealthy lifestyles. Largely recognised as the go-to social network for emerging trends – particularly among women – RED has flagged thousands of wealth-bragging posts and improved algorithms to detect such content. This will undoubtedly impact consumption behaviour in China.

Beijing’s ideals have long been broadcast over state media, but ‘privately-run’ social networks which are more influential than traditional media, are increasingly making it difficult to convey messages that don’t align with Beijing’s mandate. This is reflected in policies such as RED’s, and even more extreme measures such as content on entire subject matters disappearing online. For these reasons alone, every brand in China should take note of Common Prosperity and other policies from Beijing.

Does Common Prosperity mean everyone will drop the Max Mara cashmere coats and don Mao Suits? No, it won’t. But we’re likely to see toned-downed displays of wealth in China. Chinese consumers were already transitioning from bling-driven purchases to products that reflect more introspect, but this trend has accelerated. And the meaning of ‘status’ is transitioning to understated craftsmanship and niche brands from being in ‘the-know’, in addition to other more accessible traits such as love for the motherland. A number of brands, particularly those in the luxury category, have already started to reflect this in their hero products, comms and VIP programs. Even in the FMCG category, Mengniu learnt not to run promotions that would encourage food waste.

Interestingly, lower tier cities which are driving a lot of China’s luxury growth, are traditionally less sophisticated and ‘more-bling’ than their peers in higher tier cities. As a result of Common Prosperity, they are likely to have to mature much faster than their big city cousins did.

Just as Dior recently discovered, brands need to keep track of both Chinese consumers’ and Beijing’s cadence, and adapt their marketing strategy to reflect this. Contact China Skinny to learn how we can assist you with this.

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