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October 11, 2018

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New economy: young adults in small cities

The skyscrapers and neon lights of Guangzhou and Hefei failed to lure Zhang Shaoyang, a 24-year-old teacher in Huoshan County in the city of Lu’an, eastern China’s Anhui Province.

After graduating from the Guangzhou Academy of Fine Arts, Zhang worked in Hefei shortly before she returned to her hometown, where she earns a salary of 3,200 yuan (US$$460) a month.

Although the pay is modest, Zhang tries her best to make life comfortable. Like many young adults in her town, Zhang buys top skin-care brands online, dines out with friends occasionally, and spends on her hobbies such as traveling and photography.

“I’m quite satisfied with the lifestyle I have in a smaller town,” she said.

Zhang is one of the millions of young adults living in China’s prefecture and county-level urban areas that are playing an increasingly important role in the country’s changing consumer market.

Aged around 18 to 30, Internet-savvy, often with a college degree and a decent job that pays a stable salary, these young adults in China’s lower-tier but fast-developing cities and towns are becoming the new face of Chinese consumers, driving economic growth and offering abundant opportunities for companies to capture.

“While investors perceive larger cities as offering the most important consumer base, we believe that lower-tier cities will be bigger, wealthier and more eager to spend, and could contribute two-thirds of incremental growth in national private consumption toward 2030,” said Robin Xing, Morgan Stanley’s chief China economist, in a research report.

Richer and care-free

What underlies the changing consumer dynamics is the growing consumption power of small-town dwellers.

According to the Morgan Stanley report, per capita, disposable income for families in China’s smaller cities was 55 percent lower than those in top-tier cities a decade ago, while the difference decreased to 45 percent as of 2017 and will likely come down further to 36 percent by 2030.

For many young adults like Zhang, living in a small town means they do not need to worry about the skyrocketing real estate prices in mega-cities such as Beijing and Shanghai, and they will have more leisure time to spend money.

“I don’t need to spend much on my apartment or commute. If I were to live in bigger cities such as Guangzhou or Hefei, I would definitely be under much more pressure,” she said.

While deeper pockets create demand, the rise of e-commerce as a major way of shopping provides young people in small cities with a wide range of suppliers.

Chen Qian, a 23-year-old community worker in the city of Bengbu in Anhui Province, buys almost everything online.

“All I need is Taobao. Then I am all good,” Chen said, referring to the online shopping platform under Internet giant Alibaba.

According to a report conducted jointly by Boston Consulting Group and AliResearch, the research arm of Alibaba, by 2020, e-commerce will become a far more important retail channel, driving 42 percent of total consumption growth.

While small-town consumers are becoming increasingly affluent, they do not always aim for the fanciest products.

Oppo and Vivo, two Chinese smartphone brands focusing on the mid-range consumer segment, took up about 18 and 15 percent of China’s market share in 2017, while iPhone, representing the premium segment, took up about 9 percent of the Chinese market.

The rise of domestic brands could be attributed to small-town consumers, who were the major targets of Vivo and Oppo.

For many international brands, first-tier cities such as Beijing and Shanghai may be their major targets, but the markets in small cities are just too big to ignore.

Companies will have to venture far beyond China’s biggest metropolitan areas to win the loyalty of upper-middle-class and affluent households, said the report by BCG and AliResearch.


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