Paper Or Plastic? How Gen Y Consumers Differ From Their Parents
Beijing winters can be brutal. There is not much in terms of snow, but between the lashing cold winds filled with dust and pollution and the painfully dry air that leads to constant coughing, the last place you want to be in the winter is outside. Yesterday, I stood outside waiting to withdraw money from a China Construction Bank ATM. The middle-aged man using the machine forced me to wait for fifteen minutes as he persisted to withdraw what looked like his life savings in renminbi, and then stuff the bills into a grease-stained pillowcase.
As unusual as this situation seems, it was not the first time I had witnessed a Chinese person withdraw such an enormous amount of cash. I personally have done so myself, as each visit to my landlord’s apartment to pay rent involves a hand-off of large wads of cash. Here in China cash is the standard method of payment. In addition to normal everyday purchases many Chinese consumers will use cash to buy cars and even real estate.
See the picture below:
However…things are changing.
While I conducted research for this post I came across article after article about how Chinese consumers prefer to use only cash for their purchases. The authors of these articles completely neglected to address the fact that different age groups may not all possess the same consumer tendencies. Then, I came across this Forbes article about online shopping by China Market Research Group’s (www.cmrconsulting.com.cn) Managing Director Shaun Rein. Rein’s company interviewed 500 young adults, ages 18-32, in six Chinese cities.
Here are some of their findings:
80% of respondents said they had made online purchases in the last six months.
The vast majority expected to buy something again in the next quarter.
70% said they would use a credit card for online purchases if they had one.
CMR’s research suggests that there will be a surge in credit card spending, especially online, as a growing number of Generation Y consumers gain access to credit cards. Through my own observations I feel that this is certainly possible. Many of my Chinese friends use credit cards when we go out shopping or for dinner. I have one friend in particular who makes at least one purchase a day on Taobao, an online marketplace similar to Ebay.
UPDATE: Rein recently hosted a panel at ad:tech. He told me in an email that companies like Li Ning expect their online sales to increase by as much as 50% this year. To use his words, “It’s booming.”
www.chinadaily.com.cn/bizchina/2007-09/14/content_6107546.htm
Will Chinese consumers make the switch to plastic? What do you think it will take for credit card usage to be widespread in China? Please leave a comment and start the conversation…
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Comments
Young Chinese consumers, who do not have a credit card, will have different payment options depending on what they are buying. One channel is through Alibaba’s Zhifubao, a service that is very similar to PayPal. COD is also common. For example, when consumers buy plane tickets on eLong and Ctrip (sites both similar to Expedia) COD is the normal method of payment.
Hello Joel,
Thanks for the comment. Browsing through, I can see that we probably share several commonalities–consulting, a focus on China, even a stint in Taiwan. Hope that we can get coffee the next time we’re in the same city, but until then I look forward to reading more.
It seems to me that while the concept of debt for purchases smaller than buying a house remains anathema to most Chinese I talk to. So while the statistics you cite about how Chinese consumers want to increase their credit card purchases makes sense to me, it seems that convenience, rather than the ability to finance, is driving the trend. If consumers continue to pay on time on their revolving credit, the credit card business model is not very profitable, making China a painful market for the card players.
Thanks for getting back to me. I was always annoyed when I had to use a big stack of cash to pay for tickets from eLong or Ctrip. Looks like Zhifubao is new, but otherwise not much has changed in the past few years.
Joel,
You paint such an interesting picture of life in China. I have been really captivated by your posts, which clearly touch both those near and far (geographically as well as culturally). For someone living in China and speaking Mandarin every day you are clearly a very talented writer in English as well!
What forms of payment do young Chinese shoppers use, especially those who don’t have credit cards? COD? TT?