Consumers keen to spend, but debt cloud looms

Four-in-five Chinese households expect their incomes to rise over the next five years and plan to increase discretionary spending, although risks such as high household debt loom, a survey released on Friday found.

McKinsey's annual China Consumer Survey found 20 percent of Chinese consumers are trading up for more expensive consumer brands, compared with 12 percent in Germany and 8 percent in the United States.

The survey polled 10,000 consumers aged 18-65 across 44 cities and seven rural villages and towns.

Despite the optimism, the survey pointed out debt is rising and income growth dropped to 6.3 percent in 2016 from 10.1 percent in 2012.

Longer term, education costs and increasing healthcare expenses for elderly family members are likely to increase pressure on households.

Felix Poh, a Shanghai-based Partner in McKinsey China’s Consumer and Retail practice, said mass market consumer goods would see slower growth compared with products or services that offer self-gratification such as entertainment and gaming. 

The perceived difference between Chinese and international brands is also blurring and matters less now than value for money, quality and after sales service.

“Both foreign and local brands have opportunities to grow in China providing they can appeal to the increasingly nuanced needs of consumers," said Wouter Baan, a Beijing-based Associate Partner in McKinsey China’s Consumer and Retail practice.