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Will China's Little Emperors Become Little Consumers?
As China sets out to transform itself from world factory to urban consumer powerhouse, who are the consumers who will perform the transition? The country is going in two different directions, according to a variety of studies. Population growth is slowing, perhaps even faster than the policy makers expected. Although population more than doubled, from 551 million to 1.28 billion between 1950 and 2000. However, over the past two decades the population grew by only 8 percent, from 2000 to 1.37 billion in 2012.
China put its one-child policy into effect in 1979, affecting an estimated 35 percent of the population and eventually keeping an estimated 300 million children -- the entire population of the eurozone -- from being born. It is now contemplating easing the policy further. However, urban birth rates are approximating those in Japan, Hong Kong and Singapore as women opt for careers and independence. It is already referred to as the one-and-a-half policy as parents who were both only children can now have two.
With slowing birth rates, planners are banking on rising incomes and education levels to drive consumer spending levels upward. According to the United Nations Population Institute, China's numbers should top out at 1.43 billion by 2030 -- just 4.4 percent growth in the 18 years from 2012, and actually will begin to fall around 2035.
That means an aging society. And as consumers age, they tend to spend less and save more for retirement. The magnitude of the change is startling and gives rise to the oft-repeated statement that China may get old before it gets rich. In 1950, 32 percent of China's population was between the ages of 15 and 34 years -- the working population. By 2012, that had declined to 30.4 percent. It is expected to fall to 23.3 percent by 2030. The 15-24 age group, the largest source of construction and factory workers during China's manufacturing heyday, had fallen to 15 percent of the population by 2012 and is expected to decline further to 11 percent by 2030.
As Prime Minister Li Keqiang makes urbanization the centerpiece of his attempts at economic revitalization, the hukou system, which requires workers to register in their home districts, is expected to be modified and liberalized. But it probably won't improve labor mobility or ease some of the labor shortages. More than 220 million migrant workers have already moved away from their rural villages, leaving behind their health benefits and other citizen privileges to work in China's factories.
The downtrend in the number of workers means that Chinese companies, which have for three decades depended on a constantly renewing number of workers showing up at their factory gates, are increasingly going to have to pay higher wages. Labor tensions have been manifest in the Pearl River Delta for the past two to three years. They will continue to grow. China's "demographic bonus" has gone. Wages have averaged growth of 14 percent over the past five years and they are expected to continue to do so. This is the gamble. As the numbers of workers slow, planners hope the increased wages of those 220 million former migrant workers will turn into the future's consumers.
Who are they?
A new study by the Seoul-based Samsung Economic Research Institute published earlier this month groups the younger generations that have emerged since China's industrialization began into major categories by their Chinese-language names.
The first generation, known as the Balinghou, were the so-called "little emperors" born in the first decade of reform and opening up, SERI says -- the first of the one-child generation. "While the previous generations went through political struggles and economic hardships, the balinghou were the first generation to grow up under social stability and high economic growth. Consequently, pursuit of personal satisfaction, self-fulfillment and pleasure are one of their biggest traits."
The balinghou, according to Yoo Jin-Seok, the SERI Research Fellow who wrote the report, "has changed the lifestyles and moral values of Chinese society, generating a slew of buzzwords that reflect this social phenomena."
These buzzwords include Kenlaozu, a group characterized as "biting the old generation," which expresses their jobless existence, voluntary or involuntary, and their continued dependence on their parents. The Yueguangzu are youngsters who spend their entire monthly incomes without savings. The Fangnu and chenu are slaves to their mortgage and car payments, respectively, Yoo writes.
"Consumption by this generation is expanding more than 20 percent annually, leading the changes in consumer markets in China," according to the report. "The balinghou are now in their 30s, many have families, and thus they have become the core drivers of consumption in China. In their younger years their spending was more impulsive and experimental. Now their spending patterns are more mature with importance placed on realistic values."
The second generation of little emperors, known as the jiulinghou generation, were born in the 1990s and are now in their 20s. They hold strong opinions and are accustomed to "instant culture." Most, like the balinghou, have no siblings and grew up watching China's high-growth transformation and enjoying material prosperity.
"'What I want," are the bywords of the jiulinghou as they pursue individuality and uniqueness," Yoo writes. "The jiulinghou also actively express and share their opinions through Internet bulletin boards, online chatting (QQ or MSN), social networking sites and blogs, and have a tendency to be present-oriented and devote most of their income to consumption. They are early adopters who practice experimental consumption, and are the present and future drivers of consumption."
The third category includes the Fuerdai and the New Generation Nongmingong. They are the same age but their backgrounds are far different. They represent a subcategory of the balinghou and jiulinghou.
The fuerdai have inherited their parent's wealth and today account for 10 percent of China's wealthy, the report notes, using brands to express their personalities and prefering new or niche brands. The fuerdai's craving for uniqueness leads to a variety of brand choices and frequent changes but brand recognition is not an overriding factor in selecting a product. Since they are much richer than the balinghou, they tend to purchase luxury products like high-end cars and expensive watches that they adorn themselves with, and enjoy overseas travel.
In sharp contrast, the new generation nongmingong have humble rural backgrounds. The term was first mentioned by the Communist Party of China in January 2010. They were defined as people born in the 1980s and 1990s in rural areas who work in non-agricultural fields.
Among the 220 million nongmingong, about 100 million are new generation nongmingong. The environment and the period in which they grew up make them completely different in values and lifestyles from the first-generation nongmingong.
The new generation experienced high economic growth and social change. They have a strong sense of individualism and aspire to certain standards of living. In contrast to the previous generation, they hope to become the urban population.
"The new generation nongmingong will soon become a consumer force that can no longer be ignored, Yoo writes. "Their spending will be powerful in converting China's economic growth model. The first generation nongmingong sent money back to their hometowns, but the new generation spends most of its income. With the government continuously raising the minimum wage, their purchasing power is spiking upward."
Currently the new generation spends on low-priced items but they are expected by China's economic planners to move up the value chain to even premium brands. Companies trying tap into the domestic market will need to understand the sentiment, emotion and characteristics of these new consumers for successful entry. Continuous monitoring is necessary to identify their consumption patterns and values, and establish China strategies based on this, the report says.
Li Keqiang and his fellow economic planners are looking to these new generations to pull China itself up the value-added chain and to turn the country into a consumer society.