China’s little emperors control the purse strings

China’s one-child policy has resulted in a generation of cosseted children and twenty-somethings.

These little emperors are the centre of attention, given lavish presents, and with no siblings they have no need to share. Instant gratification rather than patience is likely to be the norm.

This has created a huge market for premium baby food, educational toys and luxury goods in particular.

Key trends

• Increasing Chinese economic clout is leading to enhanced spending power;
• Quality rather than price is increasing in importance;
• Westernisation of lifestyle: food, clothes, leisure activities;
• A rise in self-indulgent consumerism.

Commercial opportunities

• Educational products;
• Children’s toys and games market;
• Premium baby products;
• Luxury designer goods for the first generation of little emperors.

Background

The Chinese government’s ‘One Child Policy’, which was instigated in the late 1970s heavily discriminates against families with more than one child, with the exception of families in rural villages and ethnic minorities.

The result has been that within a decade, the population of 0-14 year olds has decreased from 324 million in 1996 to 238 million in 2007. This has created a standard family structure of four grandparents, two parents and one child. With both parents and two sets of grandparents lavishing attention and resources on their only child, there is a danger that the child becomes increasingly spoilt and gains a sense of self importance and entitlement – hence the naissance of the term “little emperor”.

The downside for the little emperors, who have become the conduit of all their families hopes and dreams, almost their raison d’être, is the pressure to succeed.

The creation of a generation of ‘little emperors’ has been further compounded by rapid economic growth: the number of households with a disposable income above US$7,500 has grown by 184% between 2001 and 2006, which has meant that people are able, as well as willing, to spend more on their children. And despite low birth rates, the market still grows by over 16 million (in terms of new births) each year.

Children’s spending power

The Chinese economy has grown by more than 10% per annum since 2003 and much of this resulting wealth is concentrated in the cities. Since they usually have only one child, middle-class parents have the financial capacity and the willingness to spend as much as they want on their children.

With increased disposable incomes – average household disposable income increased by 50% between 2001 and 2006 – middle to upper class parents’ funds in particular are used mainly for these little emperors, and by the little emperors.

According to research by the China Academy of social sciences in 2004, Chinese parents spend up to 50% of their total family income on their child. As a result the question is more about the quality of products rather than the price which is opening up doors for major foreign companies to enter the children’s market.

Higher spending power presents several potential markets, and one is baby and children’s food products:

• The Chinese are very conscious about the quality of food, and only the best food will be carefully chosen by attentive mothers. As a result, the market for prepared baby food has jumped in value by 94% in real terms since 2001, and the total retail sales of milk formulae has increased from RMB7.1 trillion in 2001 to RMB15.4 trillion in 2006;
• Another aspect is pregnancy related. “An Tai” is the act of good preparation for the baby during pregnancy, which is believed to aid mothers to give birth to healthier, brainier babies. For example, the music of Mozart is especially known for developing the foetus’ brain in the mother’s womb.

Opportunities are also rife for confectionary makers and soft-drink manufacturers. Packaged sweet and savoury snacks are growing in popularity among consumers, with popcorn in particular becoming extremely popular.

Ageing emperors

The first generation of little emperors are now in their twenties, so the self-indulgent consumerism has expanded from children’s products into luxury goods, and this has been a driving force behind the rapid expansion of the luxury goods industry in recent years. In 2007, 20-29 year olds have become the highest-earning age group in China. They aspire towards, and can afford, expensive Western lifestyles: holidays, beauty products, trendy clothes and designer bags.

• China now accounts for 12% of the luxury goods market and that market share will double over the next decade. All the major brands, such as Dior, Chanel, Louis Vuitton and Gucci, are already present in the largest Chinese cities and the number of boutiques of second-tier brands is continuing to rise. Some 64% of Chinese consumers believe that owning luxury goods symbolises success.

Values and ethos

The importance of education in Chinese culture should be duly noted for those who wish to target the little emperors. This means that from a young age parents teach their single children to be the best in their classes. Even toys, games, DVDs, video games and TV shows are more likely to be marketable if they have an educational edge.

• In 2006, 40% of the retail sales of traditional toys and games in China originate from pre-school toys. Activity toys and scientific kits are also moving fast in the region. By 2008, China is expected to be the largest market for pre-school toys, overtaking the USA, which is currently the leader. Little PC-type toys which help spelling, counting and other skills are driving this market.

At the moment, one of the most popular trends is to teach children English from a very young age. Educational systems such as Montessori institutions may have good prospects.

• Chinese consumer expenditure on education is forecast to almost double in real terms by 2015 from RMB606 trillion in 2006. Parents value their children’s success more than their own success and the emphasis on education and study is one of the main reasons behind the inclination for mothers to wait on their children hand and foot – to create the perfect environment – and plenty of time – to study.

Humbleness and modesty are long-established Chinese values, also reinforced by the idea of ‘collectivism’ as a communist country. Traditionally consumers have espoused Confucian values, placing greater emphasis on family and community than personal desires. But these little emperors are the centre of attention, given lavish presents, and with no siblings they have no need to share.

• Instant gratification rather than patience is likely to be the norm. Lavish consumerism directed at oneself has become standard behaviour, reinforced by the impoverished history of China before the economic boom.

The effects of globalisation

The Chinese government remains opposed to complete globalisation and the diluting of Chinese culture – not to mention threats to the supremacy of the Communist party. For example, it still attempts to retain its control over the Internet: the BBC website is not accessible in China and Google infamously censored its search services in order to gain greater access to the Chinese market. The number of Internet users more than tripled between 2001 and 2006 and is expected to increase by a further 173% by 2015.

Nevertheless, the Chinese government has relaxed its grip, and Western culture, especially that of the USA, is now part of the everyday life of young urban dwellers. Many students also go abroad to finish their university education – with more Chinese university students outside China than within, which has also served to widen the horizons of Chinese youth and young adults. Japanese culture, with video games and cartoon series such as Pokemon, is also a source of great entertainment for Chinese children. Chinese teens and professionals regularly enjoy watching Hollywood films and use iPods. Food is becoming Westernised as well, as shown by the popularity of Western brands such as McDonalds and Starbucks.

Has the backlash begun?

Summer camps such as the Golden Dream Summer Camp are targeting middle class parents who have recognized the need to instill some discipline into their spoilt children. In these camps, children are subjected to a tough regime with basic rations and tough exercise which aims to improve confidence, develop ambition and the will to succeed.

The emphasis on education and study and the constant pressure to succeed may also be laying the foundations for future rebellion. This rebellion is likely to be self-centered and based on creating a sense of individuality.

Outlook

Despite the one-child policy, birth rates have risen slightly in recent years. Rich urban families can afford to have more than one child as they can circumvent the law by giving birth abroad or bribing officials or paying the resultant fines. The government has in recent years also allowed couples who are both only children to have two kids. Despite this the flourishing economic growth of China, means that the market for targeting the little emperors is likely to continue to grow – as parents have ever more resources to lavish on their offspring.

Unless the government tries to interfere in the educational system to bring back the old values of Chinese tradition, or attempts to distribute wealth equally among urban and rural areas (which does not seem likely by the current environment), these little emperors will continue to thrive. Companies should especially eye the Chinese in their twenties, and increasingly thirties, who have big wallets and big appetites, as this market will continue to increase rapidly.

However, in the long-term their numbers could dwindle – the little emperors are showing an inclination to remain in the parental home longer, delaying both marriage and childbirth. It’s no surprise that this pampered group are reluctant to move out of the lime-light in favour of their own little emperors.