China's Consumer Confidence High and Rising

Confident Consumers: Chinese are feeling more confident than ever about their finances despite high inflation.

High inflation hasn’t kept China’s consumers from feeling more confident about their financial prospects than they did last year, according to the annual Chinese Consumer Study by McKinsey & Co.

Fifty-eigh percent of respondents expect incomes to rise next year, compared with only 39 percent in 2010. At the same time, 50% said that they spent much more this year because of inflation.

“It’s obvious that lots of Chinese people are still optimistic about their future, with a better quality of life stimulated by government domestic policies,” said Yuval Atsmon, a McKinsey & Co partner in Shanghai who co-authored the report.

Over a third (35%) said they were buying more expensive goods in a given category, up from 26% last year. Sixty percent said that buying more goods or more frequently was the main reason for their higher spending, compared with 54% in last year’s survey.

Brands are more important to the buying decisions of China’s consumers than those in the U.S. or Europe, with 42% believing that well known brands offer superior quality, down from 45% in 2009. That figure is substantially higher than for consumers in the U.S. (31%) and France (27%). But they don’t show strong loyalty to any particular brand.

“The average Chinese consumer now chooses among three to five brands in any given category, compared with two to three brands two years ago in some categories — for example, apparel, where luxury brands have grown hugely popular,” Atsmon said.

The Internet has become an integral tool of consumers, with 457 million online in China as of the end of 2010. That’s nearly twice as many as in the U.S. where about 240 million are online.

“To succeed in this environment, executives will need to understand where the growth prospects lie to modernize marketing tools for the Internet age, and to embrace rapidly growing online sales channels quickly,” said Max Magni, head of McKinsey’s Consumer Practice in Greater China.

McKinsey’s sixth annual survey is based on the shopping behavior of China’s consumers between February and April as well as interviews with 15,000 consumers in 49 cities, across four city tiers and six geographic regions.