Gen-Z Has Taste for Luxury and Little Regard for Debts

Gen-Z: Born from 1995-2010, reportedly buys 15 per cent of all luxury goods sold in China, compared with a worldwide average of 10 per cent. Their expenditures also account for 13 per cent of their total household income, compared with 4 per cent in the US and UK.

The willingness and desire of young Chinese to spend their income and that of their families is playing an increasingly large role in driving China’s economic development, while outpacing the consumption habits of their peers in the West.

Young people are very concerned about their appearance and willing to spend 40 per cent or more of their income on cosmetics, aesthetic medicine and clothing.

They also enjoy spending on whisky, vodka and blind boxes of art toys. They love watching TV series and videos of Chinese ‘ancientry’ style and ACGN. But rarely talk about politics and the authorities, which are risky to discuss in public.

‘Huang’ became a contracted live-streaming host for a social platform in China in 2016 when the concept was still in its infancy.

Dressed in ancient clothing, Huang sings Chinese pop songs and chats with his fans. He needs to entice 240,000 people a month to watch at least a minute of his live stream so he can earn his base salary. On top of rewards from fans, his monthly pay ranges from 10,000 yuan (US$1,540) to 40,000 yuan. If he can attract more than 1 million fans on several Chinese live-streaming social media platforms, he could earn more than 100,000 yuan (US$15,000) a month through advertising and promoting brands online.

The number of Millennials (born 1980-95) and Generation Z has reached 386 million, accounting for 27 per cent of the population. Most do not have siblings, and their peers are more like competitors. Their affinity for the internet is much higher than that of their parents, making them eager for a sense of belonging.

According to “Gen Z White Paper” by Kantar and Tencent Holdings, 46 per cent of Generation Z think the goal of consumption is to seek identity recognition, with socialising, personal style and immediate pleasure their key motivators.

42% of Chinese born in the 1960s are willing to socialise with acquaintances, according to the survey, but the figure is only 33% among those born in the 2000s, as they take solace in consumption.

A survey released by OC&C Consultants showed that of 15,500 young people born in 1998 or later in nine countries – China, the United States, Britain, France, Germany, Italy, Poland, Turkey and Brazil – China’s Generation Z saved less and spent a much higher proportion of their household income than in the Western world.

Compared with the generation born in the early stage of China’s reform and opening up, China’s youth have a stronger sense of identity with traditional culture and cultural nationalism, which has driven demand for domestic brands and products that incorporate Chinese traditional style and culture, a trend known as guochao that serves as an emotional outlet for self-expression.

Sales of hanfu, traditional garments worn hundreds of years ago, rose from 190 million yuan (US$30 million) in 2015 to 4.52 billion (US$696 million) in 2019, with half bought by Generation Z.

The group thinks property is the most reliable form of wealth. But the mortgage pressure in China’s first-tier cities is too huge. I feel I will not be happy for a lifetime if I buy one [flat] in Shenzhen. Except for living expenses and mortgage, there is no balance for eating, drinking and playing.” According to data from the People’s Bank of China at the end of June, the total credit card bills overdue for more than six months had soared to 85.4 billion yuan (US$13 billion), more than 10 times the level of 10 years ago. And around half of those who owe the debt were born in the 1990s.

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China Retains Role of World’s Factory as Exports Power Ahead

The rise of the Chinese economy over the past 40 years would not have been possible without the success of its export-driven growth model. While the economy has rebalanced away from export expansion in recent years, there is no let-up on its trade competitiveness.

China’s position as the “world’s factory” has strengthened despite a structural increase in production costs, and recent events such as the US-China trade war and Covid, both of which could have undermined its position in the global supply chain.

Successive US tariff increases on Chinese products had the anticipated effect. US-bound exports from China fell by 17 per cent from 2017 to end-2019, resulting in a sharp drop in China’s market share in the world’s largest consumer market.

But on the global stage, China’s market share grew by around 0.5 per cent, more than twice that of the next biggest riser, Vietnam, which saw growth of 0.2 per cent over the same period.

This happened for two reasons. First, by shifting their focus from the United States, Chinese exporters were able to explore new markets in the Asean region and countries along the Belt and Road.

Second, export diversion helped. By selling inputs to third countries for assembly before the final products were shipped to the US, China was able to circumvent some trade levies while still retaining value in the final products sold.

The signing of the phase one trade deal in early 2020 allowed some companies to breathe a sigh of relief. But little did they know that an even bigger storm was on the horizon – Covid.

On the one hand, China’s forceful response was quite effective in containing the outbreak, paving the way for a swift resumption of production and exports. On the other, the rapid spread of the virus to the rest of the world caused havoc with global production, bringing trade to its knees.

China therefore became the supplier of last resort in many pandemic-related goods, including personal protective equipment, medical machines and electronic gadgets for remote working. With China bucking the trend in global trade, its export market share soared in 2020 and foreign investment poured in.

The effective defence against the trade war and Covid reflects the resilience of China’s supply-chain ecosystem. This resilience is no longer built on cost competitiveness as China’s economy matures and the demographic cycle turns. It is a result of an accelerated upgrading of China’s domestic production system, which enables its economy to move up the value chain.

Take China’s involvement in iPhone’s production as an example. From managing only one part of the iPhone 3G’s production – final assembly – in 2008, China went on to contribute 11 items to the iPhone X’s production in 2018. Its share in iPhone’s total billing cost and retail value increased seven-to-eight-fold over 10 years.

In addition, Apple has significantly increased its production presence in China in recent years, contrary to frequent talks of the firm leaving China for more competitive locations. China in 2019 accounted for 52 of 59 of Apple’s global manufacturing centres up from 30 in 2015 despite rising US-China trade tensions.

China’s emergence as an export powerhouse also reshaped the landscape of global trade. Developed economies led by Japan and the US have lost significant market share to China in the medium term to highly skilled export segments. On the flipside, China lost market share in some low-skilled and labour-intensive sectors to emerging markets such as Vietnam due to rising wage costs.

However, China has retained many critical supply chains locally, making it necessary for others to cooperate with it and so allowing it to expand internally instead of relocating its production network beyond its borders. This strategy has helped China to establish an inclusive and enduring production ecosystem, which may prolong its days as the “world’s factory”.

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