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Cebit 2014: China's broken growth model will change Australian business: CMR

Allan Swann | May 7, 2014
Green-tech, targeting younger demographics and brand trust key to winning China

China Market Research Group (CMR) believes the reorganisation of the Chinese economy will dramatically affect the Australia tech sector.

Managing director and founder of CMR, Shaun Rein, said western myths surrounding the Chinese economy are outdated, and that modern concerns, such as pollution, demographics and supply chain trust are key to trading in the market.

One of the key initial changes is demographics, the stereotype of the Chinese being prodigious savers is rapidly changing. While the older generations are still saving more than 40 per cent of their income - lessons learned during hard times, such as the cultural revolution, those under 30 save nearly zero and are "extraordinarily optimistic" about the future of their country.

This is a market where car consumption passed the US for the first time with 21 million cars sold last year. It is also now the largest market in the world for Porsche and Ferrari.

There were 25 million credit cards in circulation in China five years ago, that number is now 340 million. China's youth have some of the highest revolving rates on credit card payments in the world.

Wages are also rising at a staggering rate of around 15-20 per cent per year, for both blue and white collar workers. Rein said this is putting pressure on manufacturers margins, and driving low cost production offshore to countries such as Vietnam and Thailand - Nike being a notable example.

Chinese companies' biggest growth hurdles are now retaining staff, with a 30 per cent turnover rate for staff in white collar industries. By comparison, the US is 11 per cent - similar to Australia.

This means for any businesses targeting China, traditional western business practises, such as targeting baby boomers as the big spenders doesn't work. That generation is not spending in China, despite its government's best efforts. Rein advises any technology business to adjust their targeting downwards by 20 years in terms of demographics.

To put it in perspective, the average age of a BMW owner in China is 39. It remains 50 in the USA.

The major concern, which is causing a generational shift in the Chinese political class' management of the economy has been the pollution 'bombs' that have wrecked its air quality.

In January 2013, Beijing reached 755 on the Air Quality Index. 100 is deemed unhealthy, 400 dangerous - 500 is meant to be the maximum. Rein says the culture now is to check mobile apps every morning before taking kids to school, or even determining whether its safe to go outside. The citizens have had enough, and the Chinese government is responding - but it will take time.

Visible price of progress
Twenty years of a manufacturing based, heavily export dependent economy has shown the visible price of progress, and this is cancelling out the advantages of this newly wealthy young generation's spending.

 

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