China’s Economic Growth Drives Global Recovery

The COVID-19 pandemic changed the way consumers work, spend and play. It didn't change the fact that China remains the growth engine of the global economy, according to McKinsey & Co. Therefore, it is critical to understand the impact that the pandemic had on the world's No. 2 economy.  A report, “Understanding Chinese Consumers: Growth Engine of the World,” looks at how the pandemic impacted buying patterns, uncovers new pockets of growth and updates digital strategies.

According to McKinsey, five trends are accelerating in China:

• Digitization. Digital tools become increasingly popular solutions, expanding from B2C to B2B. For example, 55% of consumers will continue to buy groceries online, post-pandemic.

• Declining global exposure. Rising importance of domestic markets, technology and capital. The move comes as 30-50% of companies say they are considering adjusting their supply chain strategies.

• Rising competitive intensity. Technology and agility drive winners to capture the lion's share of industry value. In China, the top decile of companies capture 90% of total economic profit, compared to 70% in the rest of the world. Many of the winners digitized prior to the pandemic and capture share when COVID-19 hit.

• Consumers come of age. Consumers, especially the young, are becoming more prudent and health-conscious. According to one survey, 42% of young consumers intend to save more as a result of the virus.

• Private and social sectors step up. The private sector plays a stronger socioeconomic role, while the social sector rises. According to McKinsey, the private sector contributes nearly two-thirds of China's economic growth and 90% of new jobs.


At the same time, other nations can learn from the recovery of China's travel industry—and the duty-free beauty opportunities that go with it. Chinese consumers have confidence in domestic leisure travel, but prefer small groups. In contrast, international travel is still considered unsafe—whether for business or leisure purposes. According to McKinsey, high-end domestic travel is booming, with luxury hotels approaching 90% occupancy levels. Where are travelers heading? The  Western China and Hainan Province, which boast beautiful scenery, outdoor activities, and beach resorts, have seen significant growth.

McKinsey said companies operating in markets with very low transmission rates may focus on rebuilding domestic demand, finding new channels, or exploring opportunities for travel bubbles. But countries are still in different stages of local lockdowns, and domestic travel may not yet be possible in every market. McKinsey suggests, where appropriate, domestic demand can be augmented through a focus on emerging domestic destinations—particularly those that offer outdoor leisure opportunities. 

Even before the pandemic, the luxury channel in all sectors was struggling, as consumers avoided department stores and shopped online. Still, the luxury sector appeals to a global consumer. McKinsey maintains that 20-30% of industry revenues are generated by consumers making luxury purchases outside their home countries. In 2018, Chinese consumers took more than 150 million trips abroad; McKinsey estimates that purchases outside the mainland accounted for more than half of China’s luxury spending that year. Want more good, albeit short-term, news for beauty companies? McKinsey said the experiental movement which has dominated luxury spending in recent years, will slow down in the short term as consumers temporarily revert to buying goods over experiences.