The number of affluent consumers in China is growing fast and their market power is being felt far and wide. Luxury goods sales in China were up by 50% in 2006.1 Already the worlda's third largest luxury goods consumers, China's affluent are expected to displace Japan as the world's largest luxury goods consumers in the next decade. Shanghai is set to join Mumbai and Moscow as the future fashion capitals of the world.2 And the affluent of China are also avid overseas travelers, hence their spending power will affect the travel and hospitality industry globally as well.
The Affluent of China are Avid Overseas Travelers
In order to better understand this increasingly important consumer segment, MasterCard has launched a new bi-annual index, the ''MasterCard Worldwide Index of China's Affluent.'' The first half of the year will survey and analyze key features of the lifestyles of China's affluent. In the second half of the year, the Index will examine and identify their preferences in terms of top domestic and international brands in ten product and service sectors. This is the inaugural report on the results of the first half of the 2007 MasterCard Worldwide Index of China's Affluent, focusing on their spending patterns, lifestyle features, as well as their attitudes toward work, family and social issues.3
Discretionary Spending and Lifestyles
The affluent segment of China is defined as consisting of two sub-segments, as illustrated in Chart 1. First, there are the mass affluent whose household income ranges from US$16,000 to US$50,000 a year. The premium affluent, on the other hand, are those who earn more than US$50,000 a year. As detailed in the Appendix, about 25% of the affluent are in the premium affluent category. Overall, both the mass affluent and the premium affluent are young and well educated.
35% Spent Between US$5,000 and US$15,000 on Leisure and Recreation
In 2006, 35% of the affluent households spent between US$5,000 and US$15,000 on leisure and recreational activities, 7.4% of them spent more than US$10,000 and 63.8% spent US$5,000 or less as shown in Table 1.4 A spending level of US$10,000 appears to be the dividing line between the mass affluent and the premium affluent. Most of the premium affluent spent more than US$10,000 while most of the mass affluent spent less than US$10,000 on such activities.
Table 1 Discretionary Spending on Leisure Activities
Table 2 Priorities for Spending Time and Money
In terms of spending priorities, both overseas and domestic travel are clearly the most attractive options. As shown in Table 2, these are followed by joining a fitness center, visiting theme parks, playing sports, and socializing and partying.
Outbound Travel
Chart 2: Frequency of Outbound Travel in 2006 shows the frequency of overseas travel by the affluent. Close to half (47.7%) traveled overseas between one and two times in 2006, while 21.8% traveled between three to four times a year.
The profile of travelers who traveled overseas more than 5 times in 2006 consists of mostly those with annual incomes over US$50,000 (87.5%). In other words, these are the premium affluent consumers, and not the mass affluent. The vast majority are male (77.3%) and university educated (84.4%).
In terms of their overseas travel destinations, Hong Kong is the overwhelming favorite as shown in Table 3. Macau is in the number two spot, followed by Thailand, Singapore and Japan.
Although destinations like France, Germany, and Italy are at the bottom of the list; each with less than 10% of the affluent travelers visiting them in 2006, they are poised to become more important in the future. These are identified by the affluent as their most favored travel destinations in future, along with those in the US and Australia.
Table 3 MasterCard Worldwide Index of China's Affluent
The affluent continue to rely on travel agencies to plan as well as make bookings for their overseas travel, as shown in Chart 3: Source of Travel Information. As an information source, the Internet ranks only slightly behind travel agencies. In 2006, only
28.2% of affluent travelers used the Internet for their travel reservations, versus 64.9% who continued to use travel agencies. But using the Internet as a channel for information and booking is a trend that is likely to accelerate in future. In 2006, for example, 57% of the affluent travelers in Shanghai used the Internet to make their own bookings.
For business travel overseas, the patterns of destinations visited by the affluent travelers are very different between the three cities as detailed in Table 4. While Hong Kong is still the top destination for all three cities, US and Singapore take second and third place respectively for the affluent in Beijing. For the Shanghai affluent, Singapore and Japan are in second and third place; whereas Macau and Thailand are in the second and third place for the affluent in Guangzhou. Some 9% of the affluent in Shanghai had also visited France and Germany in 2006.
Table 4 MasterCard Worldwide Index of China's Affluent
Domestic Travel
The frequency of domestic travel by the affluent in 2006 is shown in Chart 4: Frequency of Domestic Travel in 2006. Over half traveled domestically between 1 to 2 times and about one-third traveled 3 to 6 times.
When traveling domestically, almost half of the affluent prefer nature and scenic tours; and less than one-quarter prefer visiting cultural and historical sites. Interestingly, the patterns are very different between the three cities. Close to one-third of the affluent in Beijing prefer beach resorts; while only 5.5% and 6% in Shanghai and Guangzhou expressed the same preference.
Table 5 Most Preferred Destination Types for Domestic Travel
There appears to be a correlation between income levels and frequency of domestic travel as shown in Table 6. For domestic affluent travelers who made 7 to 11 trips in 2006, their profile is one of earning a higher income, mostly male, aged 41 to 50 years; and in senior management positions. For those who traveled domestically only 3 to 6 times in 2006, they tend to be younger, with slightly lower annual income, and there is a more even split between male and female.
Table 6 Profile of Frequent Travelers
Regular Leisure Activities
A set of regular leisure activities and interests have been identified for the affluent. As summarized in Table 7, watching foreign films is the all time favorite. Over 80% of the affluent in Beijing and Shanghai did so regularly in 2006; while over 60% of the affluent in Guangzhou did likewise.
This preference for foreign films is that much more striking in Beijing and Shanghai while the second ranking leisure activities; going to traditional drama and concerts in Beijing and going to popular music concerts in Shanghai, are reported by lower percentages of the affluent (31.9% and 57.0%). The overall profile of regular foreign film goers is that they are relatively young; belong to the mass affluent category in terms of income; and there are more females than males. They are very well educated: over 80% of them hold university and post-graduate degrees.
There are also strong differences between the three cities. Attendance of popular music concerts is the highest in Shanghai (57.0%) and lowest in Beijing (25.5%). In Shanghai, 27% of the affluent attended foreign operas and concerts on a regular basis in 2006; such activities are largely lacking in both Beijing and Guangzhou.
Table 7 Regular Leisure Activities and Interests
In terms of their future plans, it seems that the affluent will be going to even more foreign films as shown in Chart 5: Plans for Future Leisure and Recreational Activities. 42.2% plan to develop personal hobbies such as photography, calligraphy, and learning how to play a musical instrument. About a quarter of them also plan to go to more Chinese movies and to begin collecting art and curios, which clearly could become a growing business.
Work, Leisure and Family
Chart 6: Attitude Towards Leisure, Work and Money shows their attitudes toward leisure and work. There appears to be some tension between a desire to enjoy leisure which is constrained by insufficient time and a mindset inclined towards earning money for now.
This sense of tension between wanting more leisure and having to work hard is also reflected in the long hours put in by the affluent, as shown in Table 8. Over half of them work between 8 to 10 hours a day. Shanghai?s affluent seem to be able to avoid working long hours; only 8% work between 10 and 12 hours a day and none work more than 12 hours a day.
Overall, the affluent of China seem to value both work and leisure; and as seen in Chart 7: Attitude Towards Leisure and Work, the vast majority believe that both are equally important.
Table 8 Average Number of Hours Per Day at Work
Regarding their attitudes toward the family, the affluent clearly are very family-oriented. They are virtually unanimous in believing that a happy family is the most important thing in life and express the desire to spend as much time as possible with their families. However, they do not strongly disagree with the view that they need to sacrifice leisure time with their families for the sake of advancing their careers; hence the same tension between work, leisure and family is again revealed here.
Table 9 Attitudes to Family
The affluent of China appear to be quite public spirited. The vast majority agree with statements about helping the less fortunate, volunteering for charities, paying attention to international affairs and contributing to country and society, as seen in Table 10.
Table 10 Attitudes to Social Welfare and Public Affairs
In terms of what they actually did in 2006, most of the affluent donated to charities, and over one-third supported some form of environmental protection initiative. These are followed by donating blood and doing volunteer work as Chart 8: Involvement in Supporting Civic Issues in 2006 shows.
Looking to the future, about a third plan to increase their support to charities and environmental protection as shown in Chart 9: Planned Future Involvement in Supporting Worthy Causes; but the majority seem not to have made their minds up yet.
Appendix: Research Methodology and Data Details
The field research of this study was carried out by the China Economic Monitoring and Analysis Center in Beijing during the first half of 2007. Random surveys were carried out in the three key cities of Beijing, Shanghai and Guangzhou. 300 valid random survey samples of face-to-face interviews were conducted in each of the cities. Some of the key detail background data of the respondents are summarized in Tables A1 to A5.
In terms of gender, there is a close split between male and female, with marginally more male than female overall, particularly in Shanghai. There was an equal split in Guangzhou as shown in Table A1. The age breakdown of the respondents is shown in Table A2. By and large, this is an overwhelmingly young consumer segment.
Table A1 Gender Breakdown of Respondents
Table A2 Age Breakdown of Respondents
Table A3 shows the educational levels of the respondents. The affluent of China are clearly extremely well educated; with the highest educational level in Beijing.
Table A3 Education Levels of Respondents
In terms of income, some 25% of the affluent are the ''premium affluent,'' defined as those earning US$50,000 or more per year as shown in Table A4.
Table A4 Income Levels of Respondents
The affluent appear to be asset rich as well, as shown in Table A5. An impressive 94.7% own their homes. More impressive still is that 64.5% of them own their homes outright. In Guangzhou, an astonishing 83.5% own their homes outright.
Table A5 Property Ownership Status of Respondents
1. Briefing: Italian Luxury Goods. The Economist. April 14, 2007.
2. Vencat, E.F. ''Shaping the New Looks'' Newsweek, May 15/22, 2006.
3. See Appendix for research methodology and details of the respondents.
4. These expenditures are net of spending on auto, housing and housing related items.
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