The Mainland Cities of the Greater Bay Area (1): Consumer Confidence and Wealth Management Arrangements

It is well-known that social and economic development has an impact on consumer sentiment and people’s attitude towards wealth management. According to a survey conducted by the Hong Kong Trade Development Council (HKTDC) [1], as the economies of the nine mainland cities in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) have continued to expand, consumer confidence has remained at a high level. 82% of respondents in the survey indicated that their daily consumption expenditure had increased when compared with three years ago, while 77% of them expected their consumption expenditure to rise in the next three years.

The survey also found that consumers in the nine mainland GBA cities currently spend 28% of their monthly personal income on daily living expenses, 19% on wealth management and 18% on savings. This reflects that modern consumers do not rely only on traditional savings, but also plan for their future by using wealth management strategies such as investing in stocks and buying insurance. In general, consumers now demand a growing diversity of wealth management products, with 89% of respondents saying that they would like to be able to choose from more personalised wealth management services and 88% indicating they are keen to raise the share of investment in wealth management and insurance in their family wealth planning portfolio. While consumers in the nine mainland GBA cities are willing to spend, they are also willing to use their money to plan for the future. This has generated a host of opportunities for the consumer and retail financial services market.

Consumption Frequency and Amount Rising

According to the survey, consumers in the nine mainland GBA cities are not only consuming more frequently but also spending more money. 75% of respondents said their consumption frequency had risen compared with three years ago, while 82% said their consumption amount was higher than three years ago. 23% of the respondents said their consumption frequency remained the same as three years ago, and 17% had a similar opinion about their consumption amount. Only 2% of them indicated their consumption frequency had fallen, and just 1% thought their consumption amount had dropped.

The size of the change in consumption frequency and amount is related to the age and income of the respondents. Younger consumers accounted for a bigger share of respondents whose consumption frequency had risen in the last three years, with 78% of respondents aged 26-30 and 81% of respondents aged 31-35 saying that their consumption frequency had increased. 71% of respondents in the 36-40 age group and 70% of those aged 41-45 said their consumption frequency had risen. Rises in the consumption amount are more closely related to the income level of the respondents. 73% of respondents with a monthly household income of less than Rmb8,000 indicated that their consumption amount had gone up, while 87% with a monthly household income of over Rmb40,000 said the same. All in all, regardless of gender, age or income level of the respondents, the underlying trend was an increase in consumption frequency and consumption amount from three years ago, indicating that the spending power of consumers in the nine mainland GBA cities is generally on the rise.

The emergence of a diversity of payment methods has made consumption more convenient and has thus indirectly encouraged spending. Rapid technological advances and the growing maturity of the mainland’s financial sector have combined to make a wide range of payment methods available to consumers. Mobile payment and credit card instalment payment have become a part of increasing numbers of people’s daily lives. The new payment methods have made consumption faster and more convenient and have helped to promote spending. During a consumer focus group discussion conducted as part of this survey, a participant remarked: “These days, to make a payment, all you need to do is swipe your mobile phone, you don’t even feel that your money is draining away.” Another said: “My first choice now is paying by credit card, through which I can earn points as well as pay by instalments.” The role played by these payment methods in stimulating consumer desire should not be overlooked.

Rational Spending Attitude

While consumers in the nine mainland GBA cities are willing to spend, their attitude towards consumption is on the whole somewhat rational. 44% of the respondents in the survey indicated that when they spend they “pick and choose and are willing to spend on products and services of high quality and at a higher price point”, while 32% said that they were looking for a “simple lifestyle, with practicality of products and services being the primary consideration for making purchase”. Respondents with a higher monthly household income tend to adopt the first of these two attitudes, while respondents with a lower monthly household income tend to adopt the latter. 13% of respondents “live for today and spend as much as they like” while 10% “prepare for rainy days and would only buy products and services that are needed”.

It can be seen that despite the rise in the frequency and amount that people are spending, neither impulse buying nor frugal spending is a mainstream consumption attitude among consumers in the nine mainland GBA cities. On the contrary, these consumers generally think carefully before making purchases so that they can buy products and services that are high quality and are the most suitable for them. One respondent in the consumer focus group discussion said: “As my income increases and I have acquired more knowledge, I buy better products. Some products are really ‘value for money’.”

There is no marked variance in consumption attitudes between respondents of different genders and age groups.

Higher Income and Expenditure Expected

Generally speaking, consumers in the nine mainland GBA cities are optimistic about their future income and expenditure. 76% of respondents reckoned their income would increase in the next three years and 77% expected their expenditure to rise in the same period. Only 1% thought their income would fall and 3% thought their expenditure would drop. Younger respondents tend to be more optimistic about the future than their older counterparts. 82% of respondents in the 26-30 age group reckoned their income would rise in the next three years while only 71% of those in the 41-45 age group held the same view. This is likely to be due to consumers aged 26-35 being at the peak of building their career, while those aged 36-45 are in the midst of a steady career.

Higher income groups have higher expectations for rising income and expenditure. Among respondents with a monthly household income of under Rmb8,000, 74% reckoned that consumption expenditure in the coming three years would increase, while 82% of those with a monthly household income of over Rmb40,000 held the same view. Overall, consumers in the nine mainland GBA cities are optimistic about the future, with the majority of respondents reckoning that both their income and consumption expenditure would rise in the next three years.

Diversified Expenditure Distribution

Consumers in the nine mainland GBA cities tend to diversify the distribution of their expenditure. In the survey, respondents spent on average 28% of their monthly personal income on daily living, 8% on their housing (mortgage repayment or rent), and 2% on car loan repayments. Investment in wealth management and insurance was the second largest expenditure item and savings was the third largest, accounting for 19% and 18% respectively (37% when added together). This shows that today’s consumers, while spending more, are also making efforts to accumulate wealth for the future.

Children’s education, which accounts for 11% of spending on average, and family medical care (8%) also take up significant shares of respondents’ expenditure. Respondents also spent on average 6% of their monthly personal income on personal development, reflecting the importance consumers attach to self-improvement. The findings confirm that consumers in the nine mainland GBA cities have rational attitudes towards consumption. As well as increasing the amount and frequency of their spending on daily living, they also distribute their spending on family expenditure, personal development, savings and wealth management in order to raise their quality of life across the board.

Respondents’ income distribution structure tends to undergo marked changes after they have children. Among respondents who are married with children, the spending on children’s education accounts for 14% of their personal income, reflecting the emphasis consumers in the nine mainland GBA cities place on their children’s upbringing. However, there is no great difference in respondents’ monthly personal income distribution whatever their gender, age and monthly household income, or between those living in different cities.

Property Ownership

One of the reasons for this pattern of personal income distribution among the survey respondents may be the high level of property ownership. 91% of the respondents are home owners, with 66% of them having paid off the mortgage of their property on the mainland. 78% own a car and only 4% do not own any property or car. The percentage of older respondents owning a fully paid-up property on the mainland is higher than that among their younger counterparts. There is no great disparity in the level of property ownership between respondents living in different cities and earning different monthly household incomes. The high percentage of property ownership by consumers in the nine mainland GBA cities means that their expenditure on housing is relatively low, which in turn, allows them more disposable income to spend on other items.

Wealth Management

Consumers in the nine mainland GBA cities tend to buy wealth management products such as stocks, funds and insurance. They also hold an open attitude towards online wealth management and internet finance. 67% of respondents in the survey have used online wealth management services, while 52% have bought stocks, funds, insurance and other wealth management products. 43% of respondents have used online lending or instalment payment services, and 24% have bought novel investment products (e.g. cryptocurrency).

In comparison, only 20% of respondents have invested in real estate, just 15% have purchased offshore commercial insurance or wealth management products, and a mere 14% hold Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect accounts. This is probably due to the fact that the threshold for investments like these is higher. For instance, mainland individual investors must have an aggregate balance of at least Rmb500,000 in their securities and cash accounts before they are allowed to engage in Hong Kong Stock Connect securities trading.

The survey found that the proportion of respondents in Zhaoqing using online wealth management services and buying wealth management products such as securities is smaller than in the other cities, but that there is no great disparity in the use of wealth management services between respondents living in the other eight, regardless of their gender and age. This is likely to be due to the increasing convenience in buying wealth management products such as insurance. A young respondent from Shenzhen said: “Nowadays we can buy insurance on Alipay, so I bought life insurance for myself.”

Those with higher monthly household incomes tend to use a more diversified range of wealth management services. Only 31% of respondents with a monthly household income below Rmb8,000 purchase stocks, funds and other wealth management products, while 64% of respondents with a monthly household income of over Rmb40,000 do the same. Of respondents with a monthly household income of over Rmb40,000, 44% use customer relations manager services offered by banks, 43% buy novel investment products, 36% invest in real estate, 31% hold Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect accounts, 30% use professional wealth planning services, and 25% buy offshore commercial insurance or wealth management products.

Wealth Management Services in Demand

Consumers in the nine mainland GBA cities generally want there to be more wealth management services for them to choose from. 89% of respondents indicated that they would like the market to offer more personalised wealth planning services for them, 88% said they would raise their share of investment in wealth management and insurance in their family wealth planning portfolio, 85% expect more wealth management products to be available after the GBA has taken shape, while 84% indicated that they are planning their future living expenditure earlier than their parents’ generation did.

When asked about what they hoped to gain from wealth management, one participant in the consumer focus group discussion said: “My primary aim for wealth management is to buy a new apartment, and the second is setting up an education fund for the children I expect to have in the future. Education expenses for children are too high.” Another remarked: “I estimate I will retire before 63, so I must plan my post-retirement expenditure as early as possible. I can’t depend solely on the state pension insurance.”

It is worth noting that 70% of the respondents pointed out that they do not reject the idea of buying products and services in instalments or paying back the minimum repayment. This indicates that the majority of middle-class consumers do not mind advance spending, even though a high percentage of them have savings. This is probably because consumers have an optimistic view about the growth of their income in the future.

Entrepreneurship Growing Strong

Possibly as a result of the efforts currently being made by the Chinese government to encourage innovation and entrepreneurship, the survey found that some consumers in the nine mainland GBA cities are keen on entrepreneurship, with 26% of respondents saying that they are interested in starting their own business in the next few years. These prospective entrepreneurs are not just from major cities such as Guangzhou and Shenzhen, which suggests that they are positive about the prospects of the GBA and the efforts being made by the local governments of the nine cities to improve support facilities for business start-ups. Younger respondents and those earning a higher monthly household income are the most keen to start their own business. 33% of respondents in the 26-30 age group and 38% of those with a monthly household income of over Rmb40,000 said they were interested in starting a business in the next few years. With the GBA set to become one of the most favourable places in the country for entrepreneurship, the products and services available in the nine mainland GBA cities are expected to diversify further. It is also likely the emergence of more micro and small businesses will lead to an increase in demand for financial products.

Conclusion

The findings of this survey show that currently the attitudes of middle-class consumers in the nine mainland GBA cities towards consumption are optimistic and rational. Not only are they willing to spend more, they are also ready to diversify the distribution of their income in different areas. At the same time, they set aside a reasonable portion of their income for savings and investing in wealth management products. Hong Kong companies wanting to market products or provide services to these consumers should attach more importance to the quality of their products and services. Today’s consumers are more willing than before to spend their money on practical, good quality products and services. Many people are even willing to pay more for high quality products and services. Service suppliers should provide more personalised wealth management services to consumers in the nine mainland GBA cities, who are looking to plan ahead for their children’s education, their post-retirement expenditure and medical expenses, and so on. Consumers in these cities have become increasingly interested in quality products and services from all over the world. In the foreseeable future, the GBA consumer market is set to develop into a more open and internationalised market, which will attract the entry of quality products and services.

[1] For background information on this consumer survey, please see Appendix.

Appendix

Survey Background

In the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area issued by the State Council in February 2019, nine cities in Guangdong province (Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing), as well as the two special administrative regions of Hong Kong and Macao, were designated to form the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), which is set to command an important strategic position in national development. Over recent years, the nine mainland GBA cities with their large population, have seen rapid economic growth and the average income of the residents is higher than the national average. This reflects the huge potential of the consumer market in the area. In light of this, the Hong Kong Trade Development Council (HKTDC) conducted a consumer market survey of the nine mainland GBA cities in order to gauge local people’s consumer sentiment, their attitude towards the consumption of different products and services, and their consumption preferences, characteristics and trends. Recommendations, based on the findings of the survey, are then made to Hong Kong companies to help them tap into the market of the nine mainland GBA cities more effectively.

Methodology

The present survey was carried out in November 2019 in the form of an online questionnaire.  A total of 2,160 consumers in the nine mainland GBA cities were covered. Before conducting the questionnaire, two focus group discussions were held in the cities of Guangzhou, Shenzhen, Zhongshan and Huizhou to try to get a deeper understanding of consumers’ attitudes in the nine cities and thus provide a degree of qualitative analysis