Structural Change of Chinese Consumer Market and the City of Seoul’s Strategy for Expanding into the Chinese Consumer MarketSubmitted by siadmin on Wed, 04/12/2023 - 09:39
The city of Seoul is moving forward with its four main policy directions and eleven projects with a vision of making the city a trend-setting hub of the global beauty industry. In short terms, the city aims to reinforce the industrial ecosystem by establishing industrial infrastructure for the beauty sector and helping businesses boost their competitiveness. The city of Seoul aims to establish a Seoul-style beauty industry with a focus on smart technology, digitalization, and eco-friendliness in the medium- to long-term by expanding the beauty market and bringing it together with other industries like the cultural and tourism sectors. This will hopefully lead to the creation of more jobs. The city is searching for ways to progress into the Chinese consumer market as part of its drive for stronger marketing and development into the worldwide market, one of its four policy directions. It is the city’s larger goal to potentially open the door to the Chinese market for companies in Seoul not just in the beauty and fashion industries but in other sectors as well. These objectives are based on China’s rapid economic upswing and the Chinese government’s continued commitment to economic growth centered on the country’s domestic demand. Specifically, the consumption rate of China increased from 51.1% in 2012 to 55.4% in 2019, and its consumption contributed 65.9% of the country’s economic growth, a big increase from 55.4% in 2012. All these signs indicated that there must be greater efforts put in place to expand into the Chinese consumer market. An analysis of the structural change of the Chinese consumer market, primary socioeconomic factors, and Seoul’s consumer goods industry and exports to China proposes the following strategies and policy directions for advancing into the Chinese consumer market.
Firstly, the correlation between the structural change of the Chinese consumer market and primary socioeconomic factors points to the fact that the Chinese consumer market is going through a structural change. The consumption pattern is making qualitative advancement, highlighted by its transition from subsistence consumption to steady and high-quality consumption. Although the representation of subsistence consumption in the overall expenditure was larger than that of steady and high-quality consumption in 2019, the latter showed a higher increase. In 2019, Chinese consumers spent 255 times and 136.7 times more on transportation & communication and medical service & healthcare, respectively, than they did in 1985. Expenditure for education, culture and entertainment, a high-quality consumption area, was also 60.5 times higher in 2019. It was also proven that the representation of consumption of services and non-basic consumption in the country’s overall consumption increased. Consumption of services and non-basic consumption accounted for 46.31% and 22.18% of China’s consumption in 2016; both figures jumped from their 2009-levels of 33.08% and 19.00% respectively.
The structural change of the Chinese consumer market stems from a combination of improved income levels, demographic changes, the growth of e-commerce, and other socioeconomic factors. The Chinese economy is no exception to the general economic rule of “higher income, higher consumption”. Consumption is to fill not only people’s material needs but also their emotional needs, as evidenced by the rising level of income in cities leading to increased consumption of services. All consumption areas appeared to be related to income levels, however, daily supplies & services, transportation & communication, and medical service & healthcare appeared to be more closely related than other areas. Demographic variables also showed strong positive correlations with all eight consumption areas, but the
correlation was more evident with increasing urban and elderly populations than single households and youth populations. The increase in the number of older people was more closely related to transportation & communication, daily supplies & services, foods (cigarette, alcoholic beverage), medical service & healthcare, and housing; the variable of older people had a high correlation with medical service & healthcare. Lastly, the rapid growth of e-commerce in China is transforming the country’s consumption patterns. People are increasingly shopping on their smartphones, and they are also exposed to more diverse marketing strategies. The booming of e-commerce results in larger steady and high-quality consumption, which is closely related to consumption areas such as fashion, transportation & communication, and daily supplies & services.
Secondly, Seoul-based consumer goods companies’ trade with China is declining in both volume and value, and the trade is focused only on certain industries. Compared to Korea’s GDP, apparels, hobby goods, and computers recorded the highest production volumes out of all consumer goods items produced in Seoul. Apparels was the most produced item in terms of production volume and the number of companies making the item, followed by foods and hobby goods. In particular, exports to China are rising in plastics and beauty products. Consumer goods exports fell in the machinery/electronic devices and optical/precision instrument industries whereas exports went up in the beauty sector as well as the light industry. It is also noteworthy that while a lot of Seoul-based businesses are in the fashion industry, exports to China are heavily focused on beauty products.
Lastly, considering the structural change of the Chinese consumer market and the characteristics of businesses in Seoul, the following four strategies and five policy directions can be suggested: a) region-specific planning with strategies specifically tailored to the socioeconomic dynamics of different cities in China; b) “trend-making” for advancing or expanding into the Chinese medical and healthcare sector; c) constant monitoring of and designing policies for China’s main potential consumer segment and their consumption patterns as part of the trend-making; d) localization and digitalization highlighted by more robust retail and advertisement by harnessing online shopping platforms and creators in China; and e) “two-track” diplomatic efforts for the Chinese people as part of localization that will improve their perception of Seoul.