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Chinese Millennials: Big Spenders Unafraid of Debt

By Melody Yuan

Dec. 16, 2019
Chinese millennials eating at a restaurant
Chinese millennials, a generation born between 1981 and 1996, account for 65 percent of total consumption growth in China. (Photo credit): Gettyimages.com/Carlina Teteris

What will the future look like for Chinese millennials who are increasingly incurring more debt?

China’s newest generation is ready to spend, ready to travel and unafraid to take on debt. Chinese millennials, a generation born between 1981 and 1996, make up more than 25 percent of China’s population and account for 65 percent of total consumption growth in China. To most businesses, this signals a big opportunity from a honey pot of 350 million potential consumers.

While the appetite to spend is much greater than other generations, Chinese millennials, on average, owe more than 120,000 yuan ($17,433) to a number of lending and credit-issuing institutions.

“I think that young people are more willing to take financial risks because they want everything right away,” says Ashley (Wenyi) Shi, a Shanghai-born native who currently works as a realtor in San Francisco. While Shi calls herself “one of the lucky ones” who hasn’t accumulated any substantial debt, she acknowledges that there is a lot of social pressure, fueled by social media and the ease of shopping, for her peers to buy things and live their best lives.

“Millennials are all about the now,” says Zak Dychtwald, CEO of Young China Global Group and author of Young China: How the Restless Generation Will Change Their Country and the World. “While they work extraordinarily hard, they’re also interested in enjoying their lives in the moment. They want to buy that product, travel to that country and go to that party—and they’re not only willing to spend their entire monthly income, they’re willing to take on debt for it.”

A generation shaped by their nation’s economic success

China has surged to economic power in a short amount of time. Since opening to the world economy in the late 1970s, China’s financial influence has become undeniably preeminent. “Standards of living across China have improved exponentially over the last few decades,” said Perry Wong, managing director of research at the Milken Institute, during a panel at the Milken Institute’s Global Conference. “And since wages have increased, the newer generation has enjoyed a higher disposable income.”

This difference in economic backdrop defines much of the consumption style of this younger generation when compared to the older generation. “The older generation grew up poor, so as soon as they had a certain amount of money, they wanted to purchase items that boasted their wealth,” says Dychtwald. “They bought stuff that was flashy and big-brand oriented and were all about announcing their newly found status. Millennials, though, are far more about individualization and brand tribes.”

What this means for brands is that the younger Chinese generation seeks out personalization, sophisticated lifestyles and unique experiences. “They’ve grown up during the biggest rags-to-riches story of our time,” says Dychtwald. “Their consumption patterns are very similar to the U.S. boomer generation of the 1970s.”

“They’ve grown up during the biggest rags-to-riches story of our time. Their consumption patterns are very similar to the U.S. boomer generation of the 1970s.”

-Zak Dychtwald

Two smiling Chinese millennials posing for cell phone selfie
(Photo credit): Gettyimages.com/Erik Isakson

Chinese millennials grew up during the “luxury boom” period, when there was high demand in China for foreign luxury products and services, and are more willing to spend money—in fact, they are spending close to 70 percent of their income just on socializing and eating out. According to Bain & Company, Chinese consumer demand for global luxury goods is expected to grow by up to 20 percent annually, and brands such as LVMH reported getting 36 percent of its revenues from Asia in 2018.

“I don’t think that the spending habits of Chinese millennials will slow down,” says Dychtwald, “and there’s a lot of correlation between the American boomers and Chinese millennials, in terms of their impact on the economies of their respective countries. The purchasing power of boomers was huge, and you can see that as this generation aged, a lot of the products and services catered to them have thrived. Chinese millennials are similar. They will continue to redefine the consumer marketplace in different ways as they age and enter different life stages.”

A generation with unrivaled attention

Nicknamed the generation of “little emperors and empresses,” Chinese millennials may enjoy a more comfortable lifestyle, but experience a greater deal of social pressure. “The social pressures placed upon these young people are probably the heaviest, compared to any other demographic in the world,” says Dychtwald. “The project of childhood, for starters, is fundamentally different in China than anywhere else, particularly the West.”

Dychtwald encourages people to think of the 4:2:1 concept as a funnel. “You have four grandparents, two parents and one child,” he says. “And that child receives all the downward pressures of getting into a good school starting from kindergarten, pressures around creating a successful career in a highly competitive job market, even pressures in buying property and finding the best partner in a saturated marriage market.”

The 4:2:1 concept can also be seen as a funnel for resources. “If you wonder how an average millennial is able to participate in this consumer craze, it really comes down to family,” says Dychtwald. “Because in reality, the average monthly income for recent graduates living in first and second tier cities is $1,000-$1,500. So how are they affording brand new iPhones and going on lavish vacations with comparatively very little money?” This is where the role of family plays an important part in supporting the consumption behaviors of Chinese millennials.

“Remember the older generation that’s been saving money for years to support and provide a better life for the younger generation? Well, that younger generation has arrived, and they’re doing just that,” says Dychtwald. As part of the effort to secure a better life for their children, the older generation mounts heavy social pressures, but also chips in financially to help the younger generation achieve social status, goals and dreams.

Older and younger Chinese generation
(Photo credit): Gettyimages.com/From Hurricane1984
"If you wonder how an average millennial is able to participate in this consumer craze, it really comes down to the family."

-Zak Dychtwald

A generation that trusts technology

Today, 1.2 billion people in China use 4G mobile phones. Many of these are Chinese millennials who are early adopters and will have a voracious appetite for 5G technology. “The mobile phone and access to the internet has really changed the way Chinese citizens live,” says Wong. “From transactions in WeChat, to posting videos on TikTok, the new age of Chinese consumers is tech-savvy and accustomed to instant gratification.”

Shi jokes that mobile phones have been characterized as a third arm for millennials. “Everything I do now is from my phone,” she says.

Not surprisingly, the biggest forms of social interactions, transactions and activity are happening through mobile apps. “This is the most mobile-forward generation in the world,” says Dychtwald. “If you think that Western millennials use their phones a lot, the numbers reflecting phone usage in China are more than double or triple what Western metrics are.”

A large shift has taken place over the course of a generation. “The debt story in China is amazing because you’re seeing a mindset change from a generation of savers who believed in delayed gratification, to a generation of spenders who trust technology,” says Dychtwald. “What’s interesting is that Chinese millennials don’t necessarily trust banks, but they’re placing their money more so on the digital platforms that they’re already accustomed to using on a daily basis, for payments, loans and otherwise.”

China is already a relatively cashless society, and Chinese millennials have fueled China’s financial tech industry at an astonishing pace. According to a report from iResearch, the value of mobile payments in China overtook the worldwide totals of both Visa and Mastercard in 2017. These tech-savvy millennials use platforms such as Ant Financial’s Alipay, JD Finance and LexinFintech to take out loans or pay for products and services in installments.

“Everything from big car purchases to small diaper purchases can be made on these apps, and they’re not just used by people living in first or second tier cities,” says Wong. “They’re happening all across Greater China.” According to Ant Financial, one in four people aged 18 to 27 in China use their consumer credit service Hua Bei, or Ant Check Later. The platform is a part of Ant Financial and allows users to borrow money to purchase items and pay for it in monthly installments, which some people use even for every day necessities.

A generation of potential customers

“The most elementary advice I can offer to foreign brands tapping into China’s market is to not expect modernization to equal Westernization for the younger generation,” says Dychtwald. “They don’t want to be American millennials, so to treat and expect them to behave like Western millennials is a sure way to lose that demographic.”

Instead, Dychtwald suggests the following:

  1. Have accurate representation

    “People want to see people who look, act and think like them,” says Dychtwald. “If you’re looking to resonate with Chinese millennials and become a brand that they use time and time again, it shouldn’t be Justin Bieber that you feature in your ads, but someone more like Kris Wu.” China’s younger generation increasingly draws inspiration from Asia. They don’t just follow Western celebrities, but look more toward Asian influencers, such as idols in South Korea and modern designers from Japan.

  2. Understand local digital platforms

    Simply using WeChat as a digital tool to connect with consumers is no longer enough. China’s media market today is increasingly diversified, with a lot of fragmentation within each social media platform. “There’s no fibbing or sidestepping knowledge of the local market in China anymore. You need to have your finger on the pulse of where your target audience is spending the most time on their mobile phones,” Dychtwald says.

  3. Localize for the market

    “Being foreign is no longer enough,” says Dychtwald. “You need a native understanding of the current trends that are popular in China. In fact, simply segmenting this younger generation as the Chinese millennial market in and of itself is limiting because generational consumer market segments are defined much more tightly in China.” Consumer segments are defined every few years as opposed to a whole generation. On top of that, within these segments, businesses must consider everything from which city-tier and region this demographic lives in, to what dialect they speak.

As Chinese millennials continue to spur domestic consumption and drive the economy, the Chinese government will undoubtedly monitor the credit market. “China has seen the dangers of issuing too much credit through examples from the U.S., but they also see the importance of it in spurring the economy,” says Dychtwald. “One thing we do know for sure is that if something were to go awry, the Chinese government will take swift actions to restore the market.”

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