Discretionary spending, the act of buying things you don’t need by McKinsey’s definition, has been on the rise in China (unsurprisingly) as monthly disposable income of urban households double.
Spending expected to grow from $0.64 trillion (2000) to $4.38 trillion (2020). Source: McKinsey 2017
What does this mean? More Chinese shoppers, as well as Southeast Asians, are spending on items that are categorized as ‘semi-necessities’ (ex. high-end skin care lotions, designer hand bags, etc.).
As one professor and author studying Chinese consumerism puts it,
“I think the Chinese dream is the American dream plus 10%.”
What’s important to note is that a growing portion of this spending is happening outside of the country.
58 million users in China are expected to engage in cross-border transactions in 2017 and cross-border ecommerce alone is expected to reach 7.5 trillion RMB ($1.1 trillion USD) this year.
Korea, Japan and the US are currently the most popular destinations for the Chinese to find products that they believe are better quality, worth the price and guarantee authenticity – some of the reasons why they shop overseas.
Recently stepping into the limelight is neighbour and resource-rich Southeast Asia, that has recently landed on China’s radar.
Where do China-Southeast Asia trade relations stand?
China’s no. 1 and no. 2 ecommerce behemoths, Alibaba and JD.com respectively, are already directing the world’s attention to the region through recent activities. The former increased its stake in the region’s largest e-marketplace Lazada to 83% and the latter continues to fortify its local presence in Indonesia and Thailand and rumoured to be investing in existing ecommerce player Tokopedia.
The One Belt, One Road initiative that plans to build extensive roads, power plants, bridges, etc. to connect over 60 countries received financing from Chinese President Xi JinPing earlier this year.
How One Belt, One Road will connect over 60 countries. Source: Quartz
The super power’s leader pledged $109 billion SGD ($80 billion USD) to the “project of the century”.
It’s also easier to do business in China without a license as the country’s highest government authority previously approved 10 cities with a large number of warehouses for expedited handling of cross-border ecommerce purchases by customers.
Foreign retailers/brands can store merchandise they bring into China duty-free, and then send items as they are ordered through customs under the relaxed cross-border ecommerce rules.
Calculations from May 2016 counted total two-way investments between China and ASEAN countries to be over $160 billion despite political turmoil over the South China Sea.
As the gates open for easier trade between China and Southeast Asia – both literally and figuratively – businesses should have an eye open for opportunities in the other market.
It makes sense for brands operating in China to be marketing in Southeast Asia, especially when Alibaba holds around 60-70% China’s ecommerce market share and no player has more than 25% of the total cross-border ecommerce market share.
The Chinese giant long launched its very own Taobao shop-in-shop (SIS) on Lazada to target price-sensitive Singaporean shoppers with over 400,000 Chinese products.
“Southeast Asia is an attractive FDI destination for China because of its fast-growing and large domestic market,” said Lee Ju Ye Maybank economist in Singapore.
Jack Ma has also long-expressed introducing businesses to China.
These were snippets of an interview Ma participated in June this year,
“We’re interested in bringing local products to the world, to China. This has always been our focus.”
“For Thailand’s small and medium-sized ecommerce companies, don’t worry. If they want to compete with us in bringing Thai products to China and the world, maybe it’s tough, but if they do serve the customers locally, it would be great.”
In order to do this, companies in Southeast Asia need to capture Chinese consumers by bypassing marketplaces and selling direct to consumers through localized content marketing and offering products that the Chinese are already hungrily looking for.
Popular overseas goods include red wine, fresh produce such as avocados, milk and fruits.
A BCG study also found that before Chinese customers decide to make a purchase, consumers make contact with a product through seven different touch points on average, such as store displays, product promotions, or social-media comments.
The opportunities seem endless (keeping in mind tax revisions) or as Louis Li, the Deputy General Manager of JD Worldwide wants to remind the rest of the world, “don’t forget about China.”