China's Consumers are Trading Up

From

Train passengers eat cups of instant noodle en route to Chongqing from Xiamen.

Photographer: China Photos/Getty Images

Shoppers in the world's second-largest economy are becoming increasingly well heeled and sophisticated: instant coffee is giving way to the fresh variety, boutique beers are growing in popularity and mainstream beauty products are losing their shine in favor of more expensive gloss.  At the same time, sales of instant noodles are in decline.

Separate reports from Morgan Stanley and London based market research company Mintel Group Ltd. point to the potential growth of discretionary spending in China.

It's an important shift for the economy. As traditional growth drivers such as heavy industry and exports lose steam, consumption is filling some of the gap. Gross domestic product rose 6.7 percent in the third quarter from a year earlier, paced by services, which expanded 7.6 percent in the year to date. Retail sales jumped 10.7 percent in September from a year earlier. Consumption contributed 71 percent of GDP growth year to date, according to an estimate by Citigroup Inc.

In a nation of tea drinkers, fresh coffee houses are growing market share. That's partly down to status. In smaller cities, holding a white paper cup with a Starbucks' signature Sirena is seen as a status symbol.

Beer drinkers are also looking for higher quality beverages than mass-produced cheap lager: the volume of imported beer surged to about 84 million liters in August from nearly zero a decade ago.

 

China will likely become the world's largest beauty market this year and domestic consumers are contributing 40 percent of global growth for cosmetics and personal care products, according to Morgan Stanley. Chinese beauty shoppers are trading up to premium brands and mainstream names will keep "losing share to brands at the higher-end or brands providing a new experience through both marketing and product offering".

An index provided by a leading e-commerce company JD.com shows the volumes of cosmetics sold online have been growing rapidly.

 

Even forecasts for a weaker Chinese yuan won’t stop the spending frenzy, Mintel reckons. Urbanites, mostly in their 30s and 40s, are identified as future trend setters and will see their consuming patterns "less impacted" even during times of market volatility, it said.

 

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— With assistance by Yinan Zhao

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