For Wei Yongshi, the Sichuan earthquake of 2008 was a wakeup call.
The disaster killed more than 80,000 people. If all those lives could be taken in an instant, the retired science teacher realized, what are we saving all this money for?
Beyond the existential, there’s the practical: Holding money can diminish its value.
“Saving is not safe because of inflation, so we would like to improve our living standards by consuming,” Mr. Wei told Global Atlanta at the IKEA store in Chengdu, Sichuan’s capital.
He doesn’t buy much from the Swedish furniture and home products retailer; it’s better for his son and daughter’s generation. But he does appreciate the quality, he said, tapping his palm on the white showroom table where we sat.
When furniture was all wood, Chinese producers weren’t so bad, he said. But now it’s mostly particle board with glue, and cutting corners there can mean harmful odors released over time. At IKEA, you can tell the quality is good by the fresh smell when you walk in, he said.
For safety and stylistic reasons, quality is becoming more important as China’s rising middle class becomes less cost conscious and more brand sensitive.
The consultancy McKinsey & Co. recently predicted that the upper middle class in China (those making between $18,000 and $37,000) will comprise more than half of urban households by 2022, up from 14 percent today:
The evolution of the middle class means that sophisticated and seasoned shoppers—those able and willing to pay a premium for quality and to consider discretionary goods and not just basic necessities—will soon emerge as the dominant force.
This shift has big consequences for any firm looking to access the world’s largest consumer market.
While there is and will continue to be a huge underclass in China as well, the discriminating city dweller will be increasingly able to separate good from the bad. Just being a foreign brand is not enough.
A recent report by the AmCham Shanghai and Booz & Co. noted this change, saying that an e-commerce revolution is breeding choosier Chinese consumers and a more sophisticated digital marketing environment:
The nature of competition is changing. The era of land grabs and easy wins in China is rapidly coming to an end.
At B&Q, a British home improvement retailer and a Home Depot competitor before the latter’s retreat from China, we saw this in action. A couple who had spent hours researching bathroom products online was also considering what the foreign retailer had to offer.
The quality, selection and environment were better at B&Q, they said, but the local home improvement markets offered better prices, especially on building materials like bricks and mortar.
These are the consumers on which China’s next wave of growth will be built.
The China blog is made possible by Windham Brannon, an Atlanta-based CPA firm providing audit, tax and advisory services for businesses and high net-worth individuals. Mr. Williams is currently reporting from China.