Customers buy into high-tech consumption

Bright spot

Consumption has become a major driver of China's economic growth. China's retail sales — a significant indicator of consumption strength-grew 12.7 percent year-on-year in May, compared with 18.4 percent in April, data from the National Bureau of Statistics showed.

In the January-May period, the country's retail sales increased 9.3 percent year-on-year to 18.76 trillion yuan ($2.6 trillion), the NBS said. Moreover, online consumption remained a bright spot as online retail sales rose 13.8 percent on a yearly basis in the first five months of the year.

The tone-setting Central Economic Work Conference in mid-December said in 2023 China will focus on boosting domestic demand by prioritizing the recovery and expansion of consumption.

"With the optimization of COVID-19 response measures, the confidence of both consumers and market entities has been further boosted, and services-based consumption segments that were hard hit by the pandemic have recovered at a faster pace," said Wang Yun, a researcher at the Academy of Macroeconomic Research, which is affiliated with the National Development and Reform Commission, the country's top economic regulator.

China's consumer market has maintained growth momentum, with the overall growth rate expected to reach more than 7 percent this year, Wang said. Chinese consumers have become more rational and are carefully reviewing their needs, with a key focus on the quality and value of the products they buy, as well as the feelings associated with making a purchase, she noted.

Greater efforts should be made to boost the sales of new energy vehicles in rural areas, accelerate the building of NEV charging infrastructure and provide more support for the recovery of services-based consumption sectors, including tourism and culture, she added.

The recently concluded June 18 shopping carnival, which spans more than three weeks, played a vital role in promoting the recovery of consumption and boosting the economy, experts said.

JD, which initiated the midyear promotional event, said 30 percent of domestic brands saw turnover surge 100 percent year-on-year in the first 10 minutes of the final promotion that kicked off at 8 pm on June 17.

Consumers showed strong interest in a new generation of products featuring innovative technologies. Transaction volume of 4K projectors and augmented reality devices jumped 200 percent and 150 percent, respectively, on a yearly basis, JD said.

Data from Alibaba's Taobao and Tmall platforms showed that 2.56 million small and medium-sized merchants saw their sales from 8 pm on May 31 to midnight on June 17 surpass those of last year. The turnover of more than 305 brands each exceeded 100 million yuan during the period.

Both Tmall and JD did not disclose their final gross merchandise volume during this year's shopping spree.

Ray Hu, a partner at global consultancy EY, said consumers now hope to make wiser purchases through more thorough evaluation of products, with practicality a priority.

Interaction on social media is becoming a prominent part of their purchasing experience, Hu added.

To further unleash consumer spending potential, more stimulus policies are needed to stabilize and expand employment, improve household incomes, boost people's ability and willingness to spend, and spur purchases of big-ticket items such as automobiles and home appliances, said Pan Helin, co-director of the Digital Economy and Financial Innovation Research Center at Zhejiang University's International Business School.

The new type of consumption not only helps China's economic recovery, but also drives the development of emerging industries by creating fresh demand, Pan said, underlining the significance of improving products' functionality, optimizing consumers' experiences, and strengthening the competitiveness of Chinese enterprises on the global stage.

Metaverse

Immersive digital technologies such as virtual reality and augmented reality, which are vital to the metaverse, have the potential to change the way people shop by creating simulations of merchandise and providing interactive consumer experiences.

Rather than replacing physical retail outlets, the futuristic marketplaces have been built to better serve consumers' needs, experts said.

Alibaba's Tmall platform has unveiled about 10,000 3D virtual "model houses" in collaboration with offline furniture retailers. The models allow online customers to place virtual furniture in their homes to see how it will look without having to visit a store in person. Designers can customize furniture and decorations according to a customer's preferences.

JD launched a digital platform where shoppers can visit a virtual environment to view items such as furniture and household goods. It has cooperated with more than 1,000 brands and created 3D models for over 100,000 products, covering building materials, furniture, soft decorations, kitchenware and other household goods.

China has also rolled out favorable policies to better embrace the opportunities the metaverse presents. In November, the Ministry of Industry and Information Technology and several other ministries jointly released a plan to integrate VR technology into industrial applications.

By 2026, the total scale of China's VR industry, including related hardware, software, and applications, will exceed 350 billion yuan, the plan said. Meanwhile, the country aims to cultivate 100 enterprises with strong innovation ability and industry influence, while sales of VR terminals aim to top 25 million units.

Authorities in Beijing, Shanghai and the provinces of Jiangsu and Zhejiang have launched guidelines and action plans for the metaverse sector, hoping to gain an early advantage in the global race to benefit from the next generation of technology.

"E-commerce has served as a key application scenario for the metaverse, and a multitude of new business models have already emerged," said Yu Jianing, executive director of the metaverse industry committee at the China Mobile Communications Association, a Beijing-based industry association.

Yu said the application of VR and AR technologies to online marketplaces has not only improved consumers' experiences of remote shopping and boosted consumption during the pandemic, but also spearheaded a new consumption trend.

Pointing to home decoration as an example, Yu said with the help of metaverse-related technologies, consumers can experiment with putting furniture in different places, offering an immersive and interactive experience that makes shopping more convenient.

The metaverse will play an active role in empowering the real economy, and promoting in-depth integration of the digital world with the real world, Yu added.

Opportunities

Mo Daiqing, a senior analyst at domestic consultancy, Internet Economy Institute, said metaverse-related technologies will help further unleash the potential of consumption and bolster industrial upgrades.

Though still in its infancy, the metaverse has created new opportunities for China's consumer market, and has huge potential in propelling the development of customer services, logistics, finance and other industries, Mo said.

According to a report released by global consultancy PwC, the COVID-19 pandemic has altered consumers' shopping behavior, promoting stay-at-home recreational activities such as greater use of VR equipment for entertainment purposes and purchasing products in the metaverse.

Charting a new path for sustainable growth is more important than ever for a corporate strategy, said Jennifer Ye, PwC consumer markets leader for the Chinese mainland.

Brands should "enhance their product innovation capabilities, increase research and development investment and continuously create new products that meet the actual needs of consumers", she said.

The metaverse marketplace can offer new opportunities to brands in the same way that e-commerce has revolutionized operational models, Ye said. As technological advances gather pace, merchants should be prepared for rapid transformation, including upgrading both online and offline shopping contact points to stay relevant to consumers, she added.

The consultancy says the metaverse is the next frontier and it paints a rosy outlook for the metaverse-related economy, which it expects to grow to $1.5 trillion in 2030, mainly driven by AR and VR technologies.

Ye said companies should take advantage of the creative opportunities posed by such high-potential and malleable technology. "Retailers should look to enrich customer experience through the development of online communities in the metaverse where VR avatars can come together and discuss shared interests," she said.