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How Chinese consumption has changed from making ends meet to free spending
By Li Fangfang | VOL.10 September 2018 ·2018-09-26
China's millenhials are happy to use credit for wanted goals and services

Gao Yuning finds it hard to explain to his students who were born in the 1990s and beyond why Chinese people used to "buy" products with food stamps.

"My young Chinese students may have heard from their parents about what life was like in that period, but for my students from the West, they have no idea at all," Gao told ChinAfrica.

"The use of food stamps was based on a shortage economy," said Gao, an associate professor at Beijing-based School of Public Policy and Management, Tsinghua University.

Beginning in the 1950s and lasting until the 1980s, China suffered severe shortages of food and goods as the country focused on post-war reconstruction after the founding of the People's Republic of China in 1949. Throughout the country and in every household, people lived a frugal lifestyle. The Central Government had to issue ration books for people to receive food and other necessities, including oil, clothes and bicycles. This system ensured that the distribution of supplies was done on an equitable basis.

Things began to change in 1978, the first year of reform and opening up. Structural reforms were carried out in rural areas and cities; private enterprises began to boom and the market economy became more active. Ration coupons finally stopped being issued and became a part of China's history around 1993, marking the end of the shortage economy.

Gao described the three main stages Chinese consumers have experienced in the past decades. First, during the ration coupon era, people underwent shortages and then had sufficient necessities for their needs. In the 1990s, they began to accumulate wealth and preferred more rather than less, and bigger rather than smaller. In recent years, Chinese people, particularly in big cities, have started to seek a higher quality of life, materially and spiritually.

Following Japan and the United States, a growing number of young urban dwellers in China choose to live their lives on credit as the country grows from shortages to affluence with a larger middle-income group.

Generation gap

In modern Chinese families, it is apparent that there are many differences between parents and children around consumption and their derivatives. In September 2017, when Apple Inc. launched its iPhone X, it was like a carnival for Chinese millennials.

"I hate to hesitate when I see something I want. I want to have it now," Zhao Qijun, one of the Chinese millennial urban consumers who are jumping onto the buy-now-pay-later bandwagon, told China Daily.

Actually, Zhao couldn't afford the smartphone's $999 price tag. But it wasn't a problem for the 25-year-old because consumer credit services, like Chinese tech giant Alibaba's affiliate Ant Check Later, allow users to pay off their purchases in installments. At the end of 2017, products purchased by installment ranged from the 3Cs (computer, communication and consumer electronics) items to daily necessities, according to a report by Fenqile, an installment shopping platform. This method of payment, however, lowers customers' sensitivity to prices, making it more acceptable to purchase expensive, quality products, said the report.

In contrast to Zhao, who is paying for instant gratification, some people prefer to buy a dream via installments. Zhu Guangyuan was born in the rural area of Chifeng City in Inner Mongolia Autonomous Region. His diligence led him to a college in the region; however, after graduation, he found himself unemployed. An enrollment notice from a Beijing-based computer training organization caught his eye, but he couldn't afford the tuition fee. For him, an installment plan was the best choice at the time. By borrowing 16,300 yuan ($2,400) from an installment platform, Zhu only had to pay part of the interest for the first six months and the capital and the rest of the interest in the ensuing 12 months. The training was actually a prelude to his finding a decent job in his hometown, making it possible for him to eventually buy his own apartment there.

"It's easier to pay back with interest than to borrow from friends as a favor," Zhu said. Traditionally, people lend money based on the borrower's reputation and their level of familiarity. Therefore, those born rich or who have money have many more resources at their disposal, making this method unfair.

Gao described a profound change that is taking place in China from a society of personal relationships to one of individual credibility, which will make the evaluation system more objective and fair.

In a survey conducted by Ant Financial, most young urban people said they were comfortable borrowing money to fund their lifestyles. This included taking enrichment classes, attending gym classes and even tipping online bloggers.

"This phenomenon is largely due to the fact that millennials are growing up in an environment of surplus," explained Mei Feng, Vice Secretary General of the Beijing Youth Chamber of Commerce.

In Gao's view, young people have a broader sense of products which include not only tangible items, but also services. "They are willing to pay for the happiness they may acquire from an item or experience," he said.

Consumption upgrade

Historically, China is not unique in terms of its current consumption upgrade. As a researcher with a main focus on international economics and development, Gao compared China's current development to the United States in the 1920s and Japan in the 1970s-80s.

"In the 1970s, the Japanese language was everywhere in Italian luxury stores," Gao said. "And the U.S. magazine National Geographic boom was due to its domestic demand for overseas tourism."

Currently, China's fashion consumption accounts for 30 percent of the world's total, making it the top luxury consumer country, according to Chen Wenling, Chief Economist with the China Center for International Economic Exchanges. She said fashion consumption by means of overseas travel or e-commerce platforms is one of the main characteristics in the current consumption structural change.

The main reason behind the consumption upgrade, from the perspective of economic development, is the change in the country's income structure due to its economic growth. The emergence of a middle-income group has become the main driving force of the consumption upgrade. What has come with the income structure upgrade is the tendency for people's buying preferences to be differentiated, according to Gao.

Along with high-end consumption, the recent public offering of Chinese unicorn Pinduoduo, an e-commerce website backed by technology giant Tencent, also reminds the world of the increasing consumer power of a large number of low-income Chinese people. A unicorn is a privately held startup company valued at over $1 billion.

"The consumption upgrade does not only refer to the middle-income group," Gao said. "It is what is meant to build a moderately well-off society in all aspects."

(Comments to niyanshuo@chinafrica.cn)

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