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Wednesday, June 14, 2017

Globalization and the Shift in Chinese Consumerism

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It’s clear that globalization, or the development of an increasingly integrated global economy marked by free trade, free flow of capital, and cheaper foreign labor markets, has done a great deal for China, as the country was isolated from the world until the late 1970s.

Since China opened its markets to the world, foreign brands, as well as counterfeit versions of those products, have gradually flooded the marketplace (also read: Here’s How Trade Drives China’s Economy). Foreign jewelry, clothing, technology, and restaurants have spread throughout the nation, and as a result, companies and enterprising individuals have reaped notable rewards.

The China Business Review discussed how consumer trends vary by generation. Many Chinese who were born before 1960 are sensitive toward changes in consumer prices, due to the comparatively difficult times in which they were raised. The older working demographic in China (think those in their 40s now) grew up during the Cultural Revolution, and still largely gravitate towards saving money. However, this group is a bit more willing to pay premiums on foreign products.

Consumers currently in their 20s and 30s grew up in more unrestrictive times, and have a different mindset than their parents and grandparents. These age groups save less and spend more on entertainment, and often shop online. Although habits become more conservative as individuals in these categories start families, they are still more impulsive than those in older age groups. Younger generations spend less time cooking, buy more tech gadgets, and are helping drive the slow, but steady rise in car ownership.

The newest generation (under 20) provides the starkest contrast to those previous, and is the most Westernized as well. These consumers are more individualistic, and have a heavy influence on their parents’ purchases.  Similar to younger generations in the U.S., social media is an effective way to market products to this demographic. The big players here are Tencent’s TCEHY WeChat and QQ, along with Sina Weibo, owned by Weibo Corp. WB.

The variation in spending habits among younger consumers is a product of both internet access—between 2000 and 2016, the number of Chinese internet users has skyrocketed, from 22.5 million to over 721 million—and globalization in general. Companies like Starbucks SBUX and Apple AAPL are a few of the many corporations that have cashed in on the new, outward-facing youth of modern day China.

Consumers will play an integral role in guiding China’s future growth, particularly as the nation continues to decrease its reliance on foreign interest. Foreign companies that aim to navigate the region will have to remain wary of government legislation. China’s government regulators play a big role in business ventures, and have a reputation for giving foreign companies a hard time. For example, regulators shut down Apple’s iBooks and iMovies services last summer, just six months after they were started there.

For a look at more investment opportunities in China, check out this special edition of the Zacks Friday Finish Line, where hosts Ryan McQueeney and Maddy Johnson are joined by Brendan Ahern, the Chief Investment Officer of KraneShares. KraneShares is a leading provider of China-focused ETFs and Chinese investment education.

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Zacks Investment Research

June 14, 2017 at 02:01AM

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from Zacks Research Staff

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