China's Consumers Are Still Spending

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As one consumer in Shanghai told us: "Why buy a ThinkPad computer in a store when I can find more variety and better prices online?"

Online Consumer Activism

In China, e-commerce has evolved into a form of entertainment as buyers talk on blogs and company sites about their likes and dislikes of different products, brands, and marketing campaigns. It has become commonplace for consumers to scour the Internet for information before making any kind of significant purchase, and online consumer activism has taken off as message boards and chat rooms have grown in popularity. Look for Alibaba's C2C auction site Taobao to boom as consumers start buying second- and third-hand mobile phones and other electronics items.

Online games from companies such as Netease (NTES), Shanda (SNDA), and The9 (NCTY) will also see growth as consumers switch away from eating out in expensive restaurants and drinking in nightclubs and instead turn to the Internet to entertain themselves. The sector boomed 76.6% in 2008 and a comparable increase is possible this year as consumers scale back on more expensive forms of entertainment. Consumers say they like online gaming because of the social element and because of the escape it offers from the mundane.

In addition to the relatively inexpensive entertainment available online, consumers are still spending on pricey forms of entertainment that they value. Even as some cut back on trips to spas, our research indicates they still plan to spend a lot on travel in 2009. The majority of women under the age of 35 told us they will spend more on travel this year than in 2008 and are expecting to take one trip domestically in the next year, with 30% planning to travel abroad to places such as Hong Kong and Italy for shopping trips.

One 26-year-old woman from Shanghai told us she had just returned from a vacation with her mother to Malaysia, where she spent more than two weeks' salary for one night in a hotel room to "treat her mother." In other interviews with women from Anhui earning less than $300 a month, we were told they would definitely make the trip to Shanghai with their children if Walt Disney (DIS) opened a theme park there. (Disney has been in negotiations with the government to launch a Shanghai version of Disneyland.) Consumers will still spend on entertainment such as expensive trips and theme park visits to make their families happy.

China is not immune to the financial crisis, of course. Real estate has been hit especially hard, and it will be some time before the sector recovers. But all is not lost, and the Chinese consumer is still spending on leisure and entertainment while looking for better value. The name of the game will be cautious spending in 2009. If Disney does close its Shanghai deal, the company will certainly benefit in the long term.

Shaun Rein is the founder and managing director of the China Market Research Group, www.cmrconsulting.com.cn, the world's leading strategic market intelligence firm focused on China. He can be reached at srein@researchcmr.com.