On December 21, Boston Consulting Group (BCG) and AliResearch jointly released a report on China's consumer trends, projecting that the country's consumer market will add US$2.3 trillion over the next five years, with upper-middle-class and affluent consumers contributing 81% of the consumption growth. By 2020, private online shopping is expected to surge at an annual rate of 20%.

Despite China's economic slowdown, the growth rate of its consumer market is still expected to remain among the world's leading. According to BCG's forecast, despite GDP annual growth slowing to 5.5%, below the official target of 6.5%, private consumption will reach US$6.5 trillion by 2020. The US$2.3 trillion increment in China's consumer market over the next five years is equivalent to 1.3 times the current size of the consumer markets in Germany or the UK.

Meanwhile, the report, titled "China Consumer Trends Report: Three Emerging Forces Leading the New Consumer Economy," points out that the main reason China's consumption growth will continue to significantly outpace GDP growth is that demographic, social, and technological trends are fundamentally creating a dual-speed consumer economy.

Three development trends—"upper-middle-class and affluent consumers, new-generation consumers, and online shopping"—are driving the transformation of China's consumer market.

According to BCG research, the number of upper-middle-class and affluent consumers with annual income exceeding US$24,000 is increasing: it is expected that 81% of the growth in urban consumption will come from upper-middle-class and affluent consumers. By 2020, the number of upper-middle-class and affluent households is expected to double to 100 million, with their consumption expected to grow at an annual rate of 17%.

Meanwhile, China's new-generation consumers aged 18-35 are poised to replace consumers born in the 50s, 60s, and 70s as the dominant force in China's consumer market. It is estimated that the spending power of these new-generation consumers will grow at an average annual rate of 14%, twice the growth rate of consumers over 35, and they are expected to contribute 65% of the consumption increment.

In addition, the strong demand for online shopping will continue. The report points out that by 2020, private online consumption is expected to surge at an annual rate of 20%, while during the same period, retail sales growth at physical stores is expected to be only 6% per year. This means that by 2020, online shopping will reach approximately US$1.6 trillion, and 42% of private consumption growth will come from online consumption.

Currently, 51% of China's online shopping comes from mobile devices, while in other countries globally, only an average of 35% of online shopping comes from mobile. The growth of online shopping (especially mobile shopping) will open up markets for more consumer products.

The above three trends will also change the types of products and services consumed by Chinese households. BCG research finds that as Chinese consumers move into the upper-middle-class and affluent ranks, their consumption of services and high-end products increases significantly, such as luxury goods, healthy food, education, and travel, to improve and enhance their lifestyle and quality of life.

BCG Partner Jeff Walters

"Consumer goods companies must continue to pay attention to the Chinese market. China will not only remain one of the countries with the greatest growth opportunities globally, but this growth will come from different products and different retail channels," said Jeff Walters, a BCG partner and one of the report's authors.

Gao Hongbing, Dean of AliResearch

In the view of Gao Hongbing, Dean of AliResearch, online shopping is driving the transformation of China's consumer market. AliResearch research finds that online shopping can fill many unmet needs of consumers in physical stores, thereby stimulating new demand. "The per capita online spending on organic and imported food has increased significantly over the past three years," Gao Hongbing revealed. During the Double 11 shopping festival, the share of mobile transactions by consumers in the Tibet region increased, and in the future, mobile internet will further help consumers in remote areas complete their consumption behavior.

Gao Hongbing, Guo Youqi, and Jeff Walters jointly answered questions from reporters

The fragmented purchasing path of Chinese consumers means that companies need a comprehensive channel model to interact with consumers. Guo Youqi, a BCG director and one of the report's authors, said: "Because the nature of consumption is undergoing tremendous changes, past winning strategies are becoming outdated. For companies, strategically selecting suitable target consumers and product categories will be more important than ever. At the same time, companies must occupy a place in the rapidly growing online retail channel."

According to statistics, during the Double 11 shopping festival, the transaction volume on Alibaba Group's platforms reached 91.217 billion yuan, an increase of nearly 60% compared to 57.1 billion yuan in the same period last year. Among this, mobile transactions reached 62.642 billion yuan, accounting for 68%. Transactions were generated from 232 countries and regions, and 30 million Chinese consumers purchased imported goods.

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