Corporate Strategy & The New Chinese Consumer

By Jiahui Ying, Craig Hart, Ma Zhong, Jiayan Zhu 13 August, 2015

Report authors say new Chinese consumer & government needs for more sustainability means firms need to evolve

Utility & environ impact now matter and is form of self-expression; 73% say they will pay more for green products
Urbanites to drive demand showing strong preference against polluting brands; but price sensitivity still prevails

Corporate Strategy and Competitive Advantage in China’s War on Pollution – Pursuing China’s New Consumer
The report Corporate Strategy and Competitive Advantage in China’s War on Pollution – Pursuing China’s New Consumer” was published in June 2015 by the China Carbon Forum with a grant from the Royal Norwegian Embassy, Beijing. 
As part of this study, the authors Hart, Ma, Ying & Zhu of Renmin University of China’s School of Environment & Natural Resources developed a survey of consumers’ consumption preferences, and a separate business practices survey of Chinese domestic companies, joint ventures, and foreign companies doing business in China, as well as experts drawn from business and academic circles.
Read their views on the key findings below.

China’s government, its citizens and its industry are increasingly focusing their attention on the environmental challenges the country faces in its continuing development.  China is introducing new, tougher environmental laws.  At the same time, China is “marketizing” its economy and introducing reforms intended to make industry more competitive & to harness market forces to promote more sustainable environmental outcomes.  Given this highly dynamic policy environment China’s business environment is evolving and industry is being forced to respond to pressure from both government and consumers, at home and abroad.

Businesses in China now have to meet regulatory demands which require greater sustainability as well as adapt to new Chinese consumers needs

Enterprises doing business in China now must evolve their strategies in order to meet the challenges posed by China’s environmental conditions. Firms operating in China face changing demands posed by domestic government policies requiring greater sustainability in their operations, and the requirements of foreign markets and the standards these markets impose on goods & services supplied by Chinese firms. Additionally, firms serving the Chinese market must also adjust their corporate strategy to respond to increasingly aware Chinese domestic consumers & their changing preferences.
In response to these changes, the 72 enterprises surveyed are implementing environmental initiatives (see chart below).

Drivers of Enterprise Environmental Initiatives by Impact

The new Chinese consumer: an important part of China’s sustainable development

The new Chinese consumer is emerging as a major force in China and the world.  We think the new Chinese consumer is an important part of solutions to enhance the sustainability of China’s development.

“The new generation of Chinese consumers is unlike previous generations in a fundamental way.”

The new generation of Chinese consumers is unlike previous generations in a fundamental way.  Older generations of Chinese purchased a narrow range of essential products out of necessity.  Younger generations of consumers, in contrast, purchase a virtually unlimited range of goods and services for pleasure, personal fulfillment and self-expression.  This transformation has occurred in less than two decades, and we believe, there is much room for further evolution.
That the new Chinese consumer purchases goods and services to satisfy largely non-essential needs presents opportunities for the providers of green products to develop strategies to position their products and brands beyond mere utility.

Corporates should “develop strategies to position their products & brands beyond mere utility” …
… 73% of respondents surveyed said they were willing to pay more for green products; over 8% of these said they are willing to pay 10% more

Respondents Willingness to Pay

Product choice helps urban consumers reflect their self-expression & their attempts to influence and control their environment

Chinese consumers are urban, “wired” (immersed in an information rich environment), often better educated, have rising levels of disposable income, and, as a result of living in increasingly crowed and polluted cities, concerned about environmental issues that have a direct impact on their wellbeing.
These consumers are important economically, yet, due to China’s system of government, have few means to influence their general conditions.  This magnifies the importance of their decision-making power as consumers as a means of both self-expression through product choices, as well as to attempt to influence or control one’s environment. This has implications for firms doing business in China – the products they offer & their general corporate conduct.

Implications for business of the ‘new Chinese consumer’

Corporate branding and product positioning that offers this new & wired group a means of shielding themselves from environmental harms (that are of immediate concern to them) is only an initial step in the transformation of the new Chinese consumer to a green consumer.

“Green brands thus can transition from responding to emerging consumer needs, to helping shape those very needs.”

Green product manufacturers and brands, through consumer education and advertising can raise the awareness of consumers, and thereby shape their viewpoints.  Green brands thus can transition from responding to emerging consumer needs, to helping shape those very needs.  This is done through the formation of values.
Our own consumer survey of 201 individuals completed during January to February 2015 suggests that Chinese consumers will make decision in response to information concerning corporate environmental performance, especially negative environmental information.
Consumers indicated a strong willingness to decrease their purchases of goods and services from brands with poor environmental performance (reflected by a score of 5.07 out of 6), and slightly less willingness to increase their purchases from brands with environmental performance (4.87 out of 6) (see chart).

Consumers indicated a strong willingness to decrease their purchases from brands with poor environmental performance

Environmental Performance in Purchasing Decision

Demand for green to continue & grow but not yet at the sacrifice of income

Chinese citizens are simultaneously experiencing rapid increases in both income levels and pollution levels in urban areas, the center of consumer culture.

“… China has not yet reached the tipping point at which citizens are willing to trade income for a higher quality of environment”

According to the Environmental Kuznets curve, as countries develop, citizens’ experience increasing income levels and tolerate a decline in the quality of their environment in exchange for development.  Changes in values occur when individuals demand an improved quality of environment and, through regulation or otherwise, are willing to pay or forego additional income for that benefit.  The Environmental Kuznets curve has been studied extensively in China, and research to date suggests that China has not yet reached the tipping point at which citizens are willing to trade income for a higher quality of environment.
However, we note that the Kuznets curve measures citizens’ preferences on an aggregated, national scale.  Research typically does not distinguish among income groups or urban and rural residents.  As long as China’s cities – the centers of consumerism – are increasingly polluted, China’s wealthiest consumers should remain strongly motivated to use their purchasing power to improve their lives, protect their health, and perhaps send a message to those who can address pollution problems to do so.  Thus, we see the rising urban middle and upper income levels driving demand for green consumption even more strongly in the face of the overall national drive to develop.

With urban cities increasingly polluted …”we see the rising urban middle & upper income levels driving demand for green consumption”

Green Consumption based on Disposable Income
The elements of values-based strategies exist.  Along with rising income levels, China has developed a modern urban lifestyle that emphasizes personal appearance and healthy living.  Chinese culture has long been focused on health and the role of nature, rooted both in Chinese herbal medicine and ancient philosophy.  The modern version emphasizes youthful appearance, activities such as yoga and running, and healthy living such as organic food and products designed to ensure clean air and water in the household, and use of modern conveniences for busy professionals seeking to maintain balance in between work and other pursuits. Lifestyle marketing has long been practiced in the west and is now clearly established in China.

“There is good reason to expect that the new Chinese consumer will further evolve…”

There is good reason to expect that the new Chinese consumer will further evolve and that this evolution will take place as a result of changing values, in particular those relating to the environment. The full report available here discusses strategies for enterprises that seek to lead their industry in environmental practices to engage the new Chinese consumer.

Further Reading

  • Where Are The Top Fashion Brands? – Given tighter regulations for textiles in China, we review the environmental initiatives of 10 top fashion brands from fast fashion to luxury. Are they looking beyond CSR to make their business model sustainable?
  • Brands: Time To Walk The Talk – H&M & Kering, are not walking the talk on raw material risks they identified themselves. With concrete action towards a circular transition missing, China Water Risk’s Dawn McGregor wonders how serious they are
  • Hong Kong’s Thirst for Bottled Water – Hong Kong has a plastic waste issue & consuming less bottled water can help this. Why then is Hong Kong still thirsty for bottled water? Mandy Lao explores consumer attitudes towards these
  • Corporate Water Reporting in China – CDP’s report shows potentially inadequate water risk assessment by Chinese companies & those with HQ’s in China. CDP’s Gillespy on their latest report and why it’s time to report on water risks

War on Pollution

  • Water Ten: Comply Or Else – China’s new Water Ten Plan sets tough action on pollution prevention & control. While this is good for the water sector, less obvious is who or which sectors will be impacted. China Water Risk’s Tan on why China is serious about its fast & furious pollution reforms to propel China to a new norm
  • The War on Water Pollution – Premier Li Keqiang has just declared war on pollution. Tan expands on the government’s stratagems & offensives and fundamental changes required to shore up the MEP’s arsenal in order to wage a successful war

Consumption & Pollution

  • Chinese Appetite for Dirty Fashion – Do Chinese consumers know fashion’s ‘dirty’ secret? Will it change the way they shop? Liu talks to fashion bloggers, fast fashion managers, taobao shop owners, housewives, NGOs, students
  • Fashion Update: Brand Winners & Sinners – With the new Phase III Textiles Investigative Report released by 7 China NGOs through IPE, we look at who has managed to stay on top since the first report published in April 2012
  • Electronic Waste-Moving Mountains – Can China move its mountains of electronic waste? Read about the extent of China’s electronic waste & her attempts at finding legislative & practical solutions in this review
  • Cancer Villages: Toxic Tipping Point? – With official recognition of cancer villages in 2013, we reviewed 255 media reports of such villages to look at their spread and industries that may be responsible. Is this the start of a long costly road to clean up?
Jiahui Ying
Author: Jiahui Ying
Ms. Ying Jiahui is a doctoral student at the University of Georgia in environmental economics. She holds a masters degree in environmental economics from the School of Natural Resources at Renmin University of China in Beijing and a bachelors degree in economics from Zhongnan University of Economics and Law in Wuhan.
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Craig Hart
Author: Craig Hart
Craig Hart is the ENN Associate Professor at Peoples University of China and Lecturer at Johns Hopkins University. He is also a practicing attorney in the fields of energy infrastructure finance and carbon management and clean energy technologies. He holds a B.A. and J.D. from U.C. Berkeley, M.A. from New York University and a Ph.D. from the Massachusetts Institute of Technology.
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Ma Zhong
Author: Ma Zhong
Professor MA Zhong, Ph.D. in Economics, is the dean of the College of Environmental Sciences of Renmin University of China. He is the professor of the National Key Discipline “Population, Resources and Environmental Economics” and doctoral tutor. He is a committee member of the China Council for International Co-operation on Environment & Development (CCICED); the Science & Technology Committee of the Ministry of Environmental Protection (MEP); and Advisory Committee on Strategic Environmental Impact Assessment. Professor MA is also the executive director of the Chinese Society for Environmental Sciences; the editor of “China Environmental Science”, “Journal of Natural Resources”, “Wetland Science”, and “Sustainability Science”; as well as a Professor Fellow of the Resources for the Future (RFF). He is mainly engaged in teaching and research of environmental and natural resource economics, covering areas such as environmental policy, environmental management system, economic instruments, wetland biodiversity, economic evaluation and circular economy. Previously, he was the former Chinese editor-in-chief of "RFF Environmental Economics Series", team leader of the Project “Environmental and Natural Resources Pricing and Taxation” at CCICED, and also led several projects including Asian Development Bank & Global Environment Facility: "Sanjiang Plain Wetlands Protection"; MEP and World Bank: "Environmental Management Functions Transformation & Institutional Innovation"; Ministry of Science & Technology, MEP and Ministry of Construction: "Water pollution control & treatment special project – pilot study on water environmental protection pricing and taxation policy" amongst others. He is a recipient of the 2009 Green China award.
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Jiayan Zhu
Author: Jiayan Zhu
Ms. Zhu Jiayan works for China Merchant Bank in Hangzhou. She holds a masters degree in environmental economics from the School of Natural Resources at Renmin University of China in Beijing and a bachelors degree in finance from Southeast University, Nanjing.
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