The Chinese stock market continued its stumble Tuesday, with that country’s main Shanghai Composite Index falling 1.7 percent, following an 8.5 percent slide on Monday, with some $3 trillion in stock holdings being erased since June.
But China’s growing middle class may not be as harmed as you think, and by some accounts China is still a good place to sell if you’re a U.S. entrepreneur, as long as you approach the market intelligently.
A report out in mid-July from the Brookings Institution says that less than 7 percent of urban Chinese own stock, preferring to invest in property, or to hold their money in bank savings accounts. So while none are immune to larger ripple effects in the economy, few are actually directly affected. What's more, a white paper out Tuesday from e-commerce company PayPal, which went public last week, sheds light on the enormous middle class who seem to still be buying, with a particular focus on U.S.-made goods sold online.
“China is a big market, and the growth expectations and trajectory [of online spending] are high, and it’s ahead of some of the other fairly developed markets,” says Daniel Jenkinson, head of global CBT analytics for PayPal. Jenkinson, other PayPal executives, and PayPal merchants spoke at a morning event devoted to selling in China in New York on Tuesday.
By 2018, Chinese consumers are expected to spend $1.2 trillion online on retail items, according to Forrester Research, with such sales growing more than 20 percent by 2016, according to a Nielsen Harris poll conducted in June. That survey polled 1,300 Chinese adults over the age of 18. An Ipsos MORI poll conducted in late 2014 with 800 adults showed similar results. Both polls were commissioned by PayPal.
Made In America
It turns out that U.S. retailers are the No. 1 destination for Chinese buyers looking to purchase overseas, ahead of Hong Kong, Japan and the United Kingdom. And they are finding U.S. merchants through Chinese and other search engines, as well as through U.S. retailers’ own websites.
The chief reasons they like to buy American, the survey data suggests, is the perceived quality and better prices of U.S. products. And U.S. products have an aspirational quality as well, for consumers who want the social cache of owning western items.
Of those who are purchasing from U.S. retailers, more than half have bought clothing, apparel, and footwear. Forty-six percent have purchased consumer electronics, and 41 percent have bought cosmetics and beauty products. Average spend per category is $485, $1,229, and $512, respectively.
Further, nearly three quarters of those purchasing overseas have a college education, are married with children, and are proficient in English.
They’re also big users of mobile devices, with some 53 percent of buyers using a combination of desktops, smartphones, and tablets to make purchases, Jenkinson says. Nearly one quarter only use mobile devices.
How to Proceed
That’s not to say there aren’t cultural and economic challenges. China has some 300 million consumers it considers middle class, although with an average annual income equivalent to $5,000, such consumers earn considerably less than their U.S. counterparts.
Chinese buyers also differ from U.S. consumers by relying more heavily on word of mouth to make purchases, as well as social media and referrals from friends and family. So bad word of mouth and negative publicity on social media can sink you, Jenkinson says.
Additionally, China’s one child per family social policy creates its own set of circumstances, including larger extended families that live together, and that dote on the youngest member of the family. So think high demand for baby and children’s items, PayPal’s research suggests.
And while Chinese consumers are predominantly attuned to purchasing from large U.S. brand names, smaller merchants also have a significant opportunity, says Matthew Lee, vice president of North Asia for PayPal.
Given Chinese overseas buyers' proficiency in English, Jenkinson and Lee say, its not all that critical for U.S. companies to have a web page in Mandarin, so much as it might be important to offer top-notch customer service, ideally in Mandarin, for such buyers in case of problems or questions.
That may not be as far-fetched as it seems. Jomashop, an online watch retailer based in Brooklyn, says its biggest revenue growth in the past few years has come from sales to China. In the next few months, it plans to offer customer support in Manadrin, its general manager, Osher Karnowsky says.
“The Chinese consumer wants to purchase something from an American site and feel like it is an American site, so translating your site heavily into Chinese may not be the way,” Karnowsky says.