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China's consumers spending rise on spas, travel, entertainment

March 21
1:51 AM 2016

China's consumer spending is expected rise 10 percent annually for the next decade. Consumers of the world's second largest economy are increasing their spending on Spa, travel and entertainment as income levels are on upward movement. 

McKinsey & Co has surveyed 10,000 consumers in the age group of 18-65 in 44 cities across China. The survey finds out that in addition to staple goods, Chinese consumers are willing to spend more on Spa visits, entertainment and traveling. Consumers are optimistic of wage rise in the days to come. 

Bloomberg reports that consumers' changing priorities are another sign of economy shift. The Chinese economy is moving from heavy industry-driven and exports-supported mode towards consumer spending-led economy. Services sector is also adding to the growth of economy. 

According to McKinsey, "gone are the days of indiscriminate spending on products. The focus is shifting to purchasing more premium products and living a more balanced, healthy, and family-centric life."

Chinese consumers prefer new products, services and retail experiences. These products and services are available at competitive prices in China when compared with developed markets. Mobile payments by Chinese consumers rose to 25 percent of population in 2015 from zero in 2011. 

McKinsey has also observed that indiscriminate spending in China is over as consumers' focus is shifting. Over 300 brands and over 100 products have been covered as part of the consumer survey. About 55 percent of consumers are confident over wage rise in the next five years, as reported by Forbes.

The Chinese government is targeting gross domestic product (GDP) growth rate in the range of 6.5 percent and seven percent for 2016. This is China's slowest growth in 25 years. However, China's retail sales are slowing down this year, but remain in double-digit growth. 

McKinsey further said in its report that "while scale, speed and simplicity proved advantageous during the past 15 to 20 years. The changing shape of Chinese consumption is set to topple some giants of the past and elevate new champions."

Meanwhile, luxury watchmakers are seeing turbulent conditions in the domestic market as Chinese consumers are cutting spend on luxury items such as buying watches. The Chinese government is cracking down on corruption and it is also impacting this segment. Economic slowdown and terrorism-related fear of travel are squeezing revenues in luxury watch segment. However, the drop in Chinese travel to Europe has pushed sales volume in other parts of Asia, according to Financial Times.

In the entertainment sector, annual sales of cinema tickets in China are overtaking the US. The number of outbound tourists is expected to be 200 million in 2020. Acording to CLSA Ltd. foreign competitors are also moving up fast by grabbing more market share. Foreign brands in Chinese premium market have more market share, while Chinese brands are moving fast in mass segment.

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