Made in China?

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As the first country to be hit by Covid-19, China is also the first to emerge from it. While the virus hit consumption, it has also accelerated a trend towards the local, and many domestic brands have flourished in the world’s second-largest economy.

In the luxury market, for example, prior to the pandemic, two-thirds of Chinese purchases were made overseas – according to consultancy Bain & Company – either through people travelling abroad or buying from re-sellers in a practice known as ‘daigou’.

However, limitations on international travel this year have led to people spending more domestically, accelerating an existing trend: premium products have become more affordable in China since the government cut value-added tax in 2018.

In June, New York insight agency Spark conducted mobile-based ethnography with Shanghai-based women who buy luxury products. The research found signs of more pride and interest in local brands and references to a cultural renaissance.

Kantar Worldpanel reported that Chinese brands performed more strongly overall than global brands during the outbreak of the pandemic, according to Jason Yu, managing director of Worldpanel in China. This is in contrast to previous performance; while domestic brands have been growing consistently in recent years, multinationals grew faster in 2019 as they became more adaptive to the local market.

“Covid-19 provided a unique opportunity for many leading Chinese brands to outperform their western counterparts as they have strength in supply chain and consumer trust,” says Yu.

Local brands also tend to be more agile and react faster to emerging market trends – particularly in the e-commerce space – as well being more flexible in terms of price ranges, explains Yu.

Increased interest in Chinese products is not limited to the affordable, according to Keiyou Wang, research director for lifestyle and auto at Mintel, who points to the rise of premium domestic brands including Huawei and Xiaomi.

Perception of stronger cultural nous could be helping to drive interest in domestic brands. A revival of Chinese culture is seen in the term ‘guochao’, used to describe brands incorporating traditional Chinese style, which has emerged across categories over the past few years.

“Based on Mintel survey data, 65% of consumers think premium domestic brands do better than foreign brands of the same grade in cultural characteristics. Chinese premium brands are benefiting from a combination of cultural contribution and social responsibility marketing,” says Wang.

Yu adds: “Younger consumers today have more confidence in Chinese brands that understand them and there is a growing patriotic feeling and pride in ‘buying China’.”

The beauty sector offers evidence of a shift towards the homegrown, with a number of Chinese brands, such as cosmetics company Perfect Diary, competing against the large global multinationals which have long dominated the market.

A report published by Chinese lifestyle platform Little Red Book found that while Western beauty brands still dominated the app, the number of views related to domestic brands increased by 66% between January and June this year.

China’s middle class has been growing for years. However, no longer are people merely ‘trading up’ with expensive items, according to Yu – they are also becoming more rational, shown by the growth in both luxury and affordable sectors.

It’s unclear whether the middle class will be able to continue growing their spending power, as many have become more careful due to the pandemic. However, Yu adds: “Maybe people want to buy a local brand that offers the same quality at a much lower price, but they do demand a quality life. The aspiration will stay, and that will be a more permanent driving force of the consumer market in China.”

• 51% of Chinese respondents were ‘far more in favour’ of buying goods and services that had been produced in their own country (Kantar’s Covid-19 barometer, April)
• 60% of consumers aged 21-34 reported buying an item from a Chinese luxury brand during the first six months of 2020 (Agility Research & Strategy, August)
• 77% would like to buy more Chinese brands to show support after the outbreak (Mintel tracker, April)

This article was published in the October 2020 issue of Impact.