As the end of 2013 approached, China looked roughly on track to hit its target of 7.5% GDP growth. GDP growth for the first 9 months was 7.7%, and other economic indicators looked positive. Analysts expect China will renew the 7-7.5% target in 2014.
At the Central Economic Work Conference, China pledged to maintain economic and financial stability, rather than pursue the heady “relatively fast” double-digit growth it has enjoyed over the last decade.
The central planners are pushing “human-centred urbanisation” as a way to balance urban-rural development and unleash domestic demand. Relaxing stringent “hukou” resident permit restrictions and improving infrastructure will be crucial for stimulating growth outside of China’s highly-developed coastal regions.
On this front, at least, Western and Chinese analysts are largely in consensus. A report from Boston Consulting Group predicts consumer spending will be driven in the largest part by middle-income and affluent consumers (MACs) from small cities, not metropolises of the Beijing and Shanghai ilk.
29% of MACs in Tier 4 cities planned to increase their spending, compared to 22% in Tier 1 cities; 46% of Tier 4 respondents planned to “trade up” in the near future, while only 37% of their big city counterparts said the same.
The MAC population will increase from 150m to more than 400m over the next decade, and two thirds of these will reside in small cities. Moreover, by 2020 there will be nearly 800 urban locations with real disposable income per capita greater than Shanghai’s is today.
A burgeoning small city middle class could be a boon for lubes producers. With Tianjin becoming the fifth Chinese city to implement restrictions on car sales, and many more likely to follow, smaller cities will likely drive auto sales. Lubes producers with ties in local cities would benefit greatly.
It is important, however, not to assume a big-city business model will work in smaller cities, as tastes differ greatly across the country. For example, cities in the Guangzhou cluster have a proclivity for foreign brands, while their counterparts in western Xi’an strongly favour local ones.
Local knowledge is key when choosing which lubes to promote in different regions. Consumers in the clement south may use more two-stroke lubes for motorcycles; northerners will need lubes with greater viscosity ranges to weather dramatic seasonal changes.
Throughout the new year, OATS will continue to provide high-quality local insight through via our bulletin and our up-to-date Chinese vehicle data.
As always, to find out more about how OATS Global Solutions can help you stand out in the China market (and elsewhere) contact Diana Shen. We look forward to hearing from you.
We also invite you to share the OATS China Bulletin with your colleagues and contacts.
Sebastian Crawshaw
Chairman