In 2013, there were 2.9 million U.S. Dollar millionaires in China. They were 38 years old on average. 12-months later, following a year of slowing GDP growth, low to negative house price movements in most cities, and the end of double digit growth for most luxury brands, more than one million Chinese millionaires have joined the ranks. It is another indicator of the continued growing affluence of individual Chinese.
China’s rising wealth is apparent across almost all demographics, not just its millionaires. Significantly more consumers have enough spending power to happily drop $20 on going to the cinema, buy imported products, travel abroad, and for many, invest overseas. And invest they are. In the space of a year, Chinese have overtaken Canadians to become the top international buyer of U.S. residential property, shelling out two and half times more on U.S. houses and condos than the Canucks. With Chinese stocks’ recent free fall and the sluggish domestic property market, increasingly sophisticated Chinese investors will look to further diversify their portfolios abroad.
There’s been no shortage of coverage about the stronger RMB making handbags cheaper in Paris, but the average Vancouverite, Aucklander and residents in almost any major city in the Western world are probably more aware that the rising currency is making their property look even more attractive to Chinese buyers.
As recently as October 2014, the U.S. Treasury issued a report stating that the RMB was significantly undervalued, artificially lowering the price of Chinese exports. However, over the past 12-months the RMB has appreciated 18% on the Euro, 22% on the Kiwi Dollar, 18% the Aussie, 13% Canadian, 8% GB Pound and 0.3% U.S. Dollar.
The rising RMB will assist the current structural shift happening in China’s economy – moving from just producing cheap goods to further up the value chain, as well as encouraging consumerism. An appreciating currency helps makes the acquisition of foreign IP and brands more affordable. If we look at how many millionaires are being created in China, and how fast sovereign funds are growing and looking internationally, we can expect to see more Club Med, House of Fraser, Volvo and Lenovo-style acquisitions happening, in addition to a rise in foreign real estate purchases. Likewise, foreign products and services will also become cheaper for consumers, increasing consumption, which will bode well for imported products that are marketed well. China Skinny can assist with that. We hope you enjoy this week’s Skinny.
Can You Understand the Chinese Consumer in Just One Hour?: 23-minute podcast from McKinsey covering three themes about the Chinese market: 1) its complexity; 2) it’s the world’s most competitive market; and 3) the state’s decisive role in shaping the environment is as far reaching as the beer and art market.
‘Why Do Chinese Lack Creativity?’: A popular online essay touched on the reasons for Chinese lack of creativity and innovation, but urged Chinese to “not sell themselves short”. The anonymous essay received many comments and resonated widely with Chinese.
Starting From the Bottom: China Finally Embraces Entrepreneurs: China may not strike many people as a “start-up nation”. However, with a generation of ambitious young Chinese, increased government support, the rise of angel investors, and the loosening of the educational system, China’s start-up scene is on the rise.
Alipay’s US Chief Talks Expansion, Uber China Partnership and More: Unlike Paypal, Alipay helps you in every day life including buying goods in physical stores, paying utility bills and catching cabs offline. American retailers are increasingly allowing Chinese shoppers to buy with Alipay, including businesses such as Macy’s, Saks Fifth Avenue, Carter’s, Jewelry.com, and Walgreen’s Skin Store.
Chinese Consumers Deserve Better Service: On the surface, Chinese consumer savings rates indicate a reluctance to spend. To increase spending, a lot could be done to improve service – just look at the cinema, there are plenty of cheap/free alternatives but the service and experience is good enough for millions of Chinese to shell out $20 a pop to see a film every week.
Growth Continues, But Skies Are Not All Blue For Wealth Managers: Private financial wealth globally grew by nearly 12% in 2014, with China’s 38% growth in the equity market playing a big part in the Asia Pacific region (excluding Japan) surpassing Europe for the first time according to BCG. At the end of 2014 there were 17 million millionaires worldwide; China had four million millionaires – a million more than last year, but still behind the U.S.’s seven million.
Vancouver’s Housing Crisis: No, Not Like Before, And Not Like Anywhere Else: Since 2005, Vancouver’s housing prices have turned into a ‘freak show’, with the unaffordability index growing by 100%. Over the same period, San Francisco’s unaffordability grew by just 16%, Sydney 11% and New York actually became 14% more affordable. From 2005 to 2012, Vancouver attracted about 45,000 rich migrants under wealth-determined schemes, more than any other city in the world – the large majority were from China. Auckland, New Zealand has the next worst unaffordability growth in the Western world at 39%. Chinese have also become the top international buyer of U.S. residential property, investing more than two and a half times what second placed Canadians spent for the year ended March 2015.
More Urban Chinese Consumers Plan to Buy Homes: 14.7% of urban Chinese residents were prepared to buy a house within the next three months according to a People’s Bank of China survey, up from 13.8% in the first quarter. 18.2% expected house prices to rise in the coming quarter, versus 15.6% three months ago. House prices in May grew 0.06% – the first rise in 13 months.
China’s Taobao Shoppers Like Surprises, Sales: Why Chinese have adopted Taobao into their everyday life: personalisation, mobile shopping, person to person, window shopping and Single’s Day.
Even Fancy British Prep Schools Like Eton Are Getting In On China’s Online Education Boom: Eton’s online learning subsidiary has announced that it will be launching EtonX, to “partner with leading schools in China to deliver courses built on Eton’s style of education.”
Over-Aged: Chinese Authorities Seize Decades-Old Meat: Chinese customs have seized over 100,000 tons of chicken wings, beef and pork worth an estimated $480 million. The meat poses serious health risks, with some of it more than 40 years old. Chinese authorities dealt with 18,556 commodity smuggling cases last year.
Study Maps Concentrations of Antibiotics in Chinese Waterways: China accounts for almost half of the world’s antibiotic usage, with 52% being used on animals increasing the likelihood of drug-resistant bacteria. The drugs are entering China’s waterways through human and animal excretion, with the worst affected areas in Beijing and nearby provinces, Shanghai and surrounds, and Guangdong – China’s three wealthiest areas.
Chinese Respond to ‘Rude’ Stereotype: An American retail worker posted a question on Reddit asking ‘Why do Chinese people have a poor reputation as tourists?”. The question received more than 2,000 replies from Chinese and expats in China.
Easier Access to Europe for Chinese: Under a new pilot visa service, a single visit to a UK visa application centre will allow Chinese visitors to submit a visa application for both the UK and Belgium. With a Belgium visa, they will also be able to visit the 25 European countries in the Schengen area. Chinese have surpassed India as the top country for visa applications to the UK.
VW Pays the Price For Failing to Respond to Evolving Customer Needs in China: After outperforming the market for almost a decade, VW has begun to lose market share in China with sales dipping 3.7%. Newly prosperous car buyers have migrated from sedans and microvans to SUVs and multipurpose vehicles, and VW has not responded as quickly as some of its competitors.
Samsonite Makes Move Downmarket to Protect China Sales: Samsonite’s prospects are improving in China since the luggage-maker moved downmarket. “Earlier you wanted to display the highest-priced goods at the front of the store so the consumer feels good about your brand and comes in to shop,” said the company’s CEO. “Now you want to display the mid-price of your offering so the customer is not getting scared.”