Retail sector to consolidate growth

China's consumer market is poised to gain recovery momentum this year, and the country's rising middle-income group is playing a vital role in driving consumption growth and unleashing immense retail sales potential, said Daniel Zipser, senior partner of global consultancy McKinsey & Co.

Zipser, who is also the leader of McKinsey's consumer and retail practice in Asia, said in an exclusive interview with China Daily that the country's consumption market has seen a moderate recovery so far and he anticipates this trend to continue. "The times of double-digit growth of consumption are over. I think China has been transitioning into a period of more moderate growth," Zipser said.

He added that although China's consumption sector is in a "mid-single-digit growth" phase, the rate is still "remarkable" compared with other markets around the world. Meanwhile, the recovery in the consumer services sector — including domestic and international tourism, food services, dining out and entertainment — is robust.

Zipser remains confident about the long-term prospects of China's consumer market, saying the country's growth over the past two decades derived largely from the rise of the middle-income group, and "there is still substantial potential ...for more urbanization, more income increases". The rise of the middle-income group will continue to drive consumption, he added.

He noted that Chinese consumers have become prudent and are very cautious about potential purchases, and when they spend, they try to get the best deal. Although some major e-commerce platforms in China have adopted a low-price strategy to attract price-sensitive consumers, Chinese shoppers, however, still want to buy premium brands when they can, he said.

Zipser said there is a clear shift from product consumption to service consumption. "We have seen a very strong and healthy recovery of tourism after the pandemic crisis," and that increase in tourism happens both within China and overseas.

China's consumer market has witnessed a sustained recovery. Retail sales, a significant indicator of consumption strength, grew 4.1 percent year-on-year in the first five months, said the National Bureau of Statistics.

Online retail sales jumped 12.4 percent year-on-year during the January-May period. In May, retail sales rose 3.7 percent year-on-year versus 2.3 percent in April, said the NBS.

The country has rolled out a raft of measures to spur the consumption of products and services such as automobiles, electronics, housing and home decor amid its broader push to boost momentum and stabilize the economy.

Zipser said innovative digital technologies such as artificial intelligence and big data play a crucial part in bolstering the recovery and growth of consumption, and livestreaming e-commerce is an innovation from China over the past couple of years.

In addition, the rise of Generation Z consumers — those born between the mid-1990s and the early 2010s — brings opportunities to both local and foreign brands alike, Zipser said.

"I think they're looking for the best products. And if basically local brands can answer your questions and are actually able to provide the highest quality of products, they will be eventually the brand of choice for young Chinese consumers," he said, adding that what the consumers care most about is actually product quality and the value-for-money they are getting from the product.

"People are not just looking for the cheapest product. They're looking for the lowest price for the brands they want," Zipser said. "If you come up with a new, innovative product, if you come up with a differentiated product, you will be able to actually ask for a higher price for that."

Pan Helin, a member of the Ministry of Industry and Information Technology's Expert Committee for Information and Communication Economy, said more efforts should be made to stabilize and expand employment, improve household incomes, and boost people's ability and willingness to spend so as to further spur consumption.

Pan said enterprises should be encouraged to use new-generation information technologies such as big data, AI and cloud computing to create new types of green and intelligent consumer goods.