China’s vast consumer market defies classification. And yet, amidst the mosaic of consumers divided by everything from geography to socio-economic status, one key group has more power than most – the 300 million-strong middle class, many of whom were born after the 1980s.

China’s rapid transformation over the last four decades has given rise to significant shifts in consumer behaviour. The journey began with a focus on cost, dictated by limited disposable income that led buyers to chase the lowest prices. The narrative then transitioned to prioritising value, with quality versus price considerations becoming central. Subsequently, luxury brands started to lure in consumers, becoming status symbols for the newly wealthy.

In the wake of these trends, a new class of savvy, conscientious consumers has emerged, especially in first-tier cities such as Beijing and Shanghai. These shoppers are driven by a desire for experiences and exclusivity and are adept at applying the knowledge they have gleaned from online research to find the best product at the best price.

The lure of localised offerings

While international luxury labels continue to be popular with China’s burgeoning middle class, brands are now adapting their offerings to resonate with Chinese consumers on a deeper level and appeal to the trend of China Chic – or Guochao as it is known in Chinese. Many brands are incorporating Chinese icons or elements tied to traditional festivals or stories into their products. Moreover, limited-edition items crafted exclusively for the Chinese market are gaining traction too.

This localisation extends beyond the product to the experience. Brands must establish meaningful connections with their audience through well-chosen collaborations that have cultural resonance. For example, Diageo’s Johnny Walker Blue Label launched a Forbidden City Limited Edition bottle, while British fragrance house Creed partnered with Benzo, a rapper from Chengdu, to incorporate mention of their fragrance into his music.

The review revolution

The contemporary Chinese consumer is defined by their discernment, and their willingness to seek out the opinions of their peers. When prospective buyers first start looking for a product, their first instinct is to check opinions on platforms like Xiaohongshu and Douyin. These reviews, often from other customers with a similar socio-economic profile, play a pivotal role in shaping purchase decisions.

The significance of reviews extends across borders. A stroll down London’s Bond Street or a trip to Bicester Village reveals the same pattern among Chinese shoppers – they will not hesitate to share or seek out opinions. The digital landscape has given consumers the power to scrutinise not only a product’s quality and utility, but also the customer service and refund policies offered by brands. British brands should build awareness of these behaviours into their customer service ethos both in China and in the UK.

Influencers become the architects of consumer choice

Influencers wield remarkable sway over consumer choices all over the world. In China, these opinion shapers come in various tiers. Key opinion leaders (KOLs) – usually existing celebrities (singers, actors) or influencers with a celebrity-sized following such as Li Jiaqi – are instrumental in raising product awareness among their expansive follower bases. Key opinion consumers (KOCs) cater to niche audiences, offering detailed reviews and insights. Key opinion sellers (KOSs) leverage their knowledge and influence to drive direct sales within specific demographics, often through more private spaces such as WeChat groups (limited to 500 people).

Beyond these tiers lies the average consumer, keen on sharing their purchases and experiences online. Thus, the customer journey becomes a blend of trusted reviews, peer endorsements, and celebrity influence, all of which can have an effect on a brand’s reputation and success.

Experiential shopping is transforming the retail experience

In the face of online competition, today’s bricks-and-mortar shopping experiences must transcend transactional moments; they must deliver an immersive experience. This notion holds especially true in China, where architects are reimagining shopping malls to prioritise experiences over conventional retail spaces. Simon Mitchell from renowned architecture firm Sybarite explains how malls are transforming into hubs of art installations, public spaces, green zones, and socialising spots. This change is indicative of a larger shift from shops as mere storage spaces to showrooms.

Technology is completely intertwined with this experience, with virtual reality (VR) and augmented reality (AR) empowering consumers to make more informed choices. VR and AR tools facilitate personalised interactions, allowing customers to visualise products in their lives before purchasing. British brands such as Molton Brown and Burberry have already started leveraging digital platforms to craft bespoke experiences that seamlessly merge the online and offline worlds.

Conscious consumerism: The ethical imperative

One of the newer threads running through China’s middle-class consumption trends is the growing awareness of ethics and sustainability. Young Chinese consumers are no longer just buying products; they are investing in brands with sound ethical and environmental foundations. This change has prompted companies to integrate sustainability into more aspects of their operations. Consumers demand more than symbolic corporate responsibility; they seek authenticity, transparency and community engagement.

Shaping the future of consumption

The story of China’s middle-class consumer is one of transformation, shaped by a rich tapestry of historical shifts, technological leaps and ethical considerations. This dynamic narrative continues to unfold, offering brands an unparalleled opportunity to be part of the journey that is shaping the future of consumerism in China and beyond.

As China’s consumer landscape evolves, brands are compelled to adapt or risk irrelevance. A symbiotic relationship between consumers and brands has emerged, where shared values and experiences define success. The road ahead demands ethical practices, localised offerings, immersive experiences, and a genuine commitment to community development.

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The news that the UK saw its warmest year on record in 2022 – and the prediction that this year could be even hotter – is yet another reminder of the urgent need to enable a low-carbon future. One of the many ways that this can be achieved is by pushing green finance into the mainstream.

2021 saw China become the world’s second-largest green bond market according to HSBC (issuing over RMB 600 billion of green bonds, a 180% increase on 2020), as the country rolled out funding to support the vast array of clean and renewable infrastructural projects that will be required to meet its ambitious net zero targets. The UK financial sector, for its part, has played a world-leading role in developing such instruments from their inception, and is well-placed to work together with Chinese partners in pursuing common goals.

Green finance can be defined as financial regulations, standards, products or investments that pursue environmental goals, including climate change adaptation and mitigation, and biodiversity. Over the past decade, the UK and China have established strong partnerships in the field of green finance, becoming world leaders in responding to the transition to a green economy. In a speech in London at City Week 2022 last April, Chinese Ambassador Zheng Zeguang spoke of the “broad space for China-UK cooperation on green development” and noted that a March 2022 conversation between President Xi Jinping and then Prime Minister Boris Johnson had highlighted cooperation in green financial services and the digital economy.

The UK-China Green Finance Centre, co-established by the City of London and the Green Finance Committee of the China Society for Finance and Banking, has spearheaded UK-China collaboration in green finance, and continues to serve as a key platform for leading industry and policy experts to develop market-led solutions to help scale up green finance in both countries – as well as globally.

At the Second Belt and Road Forum for International Cooperation held in Beijing in 2019, the UK-China Green Finance Taskforce (UKCGFC) announced the formation of the Secretariat for the Green Investment Principles for the Belt and Road (GIP), and the first list of signatories, including HSBC. The goal of the GIP is to encourage and assist signatories to better integrate environmental considerations into the decision-making and implementation processes of their investments in the region. Today, the number of GIP signatories stands at 40, with overall assets amounting to over $48 trillion worldwide.

The UKCGFC is supported by the UK Government through the China-UK PACT (Partnering for Accelerated Climate Transitions) programme. Since it launched in 2018, UK PACT has funded eight projects in China with the aim of helping the country reach its goal of reaching carbon neutrality by 2060. The newest round of projects, which started in 2021, includes a project to help financial institutions make greener decisions through climate-related disclosure and transparency, and “a project to improve the uptake of Environmental, Social and Corporate Governance (ESG) measures by the Chinese investment community, as well as to accelerate finance transition through the creation of a China-UK leadership forum, jointly led by the City of London Corporation and the Beijing Institute of Green Finance and Sustainability (BIFS).”

In terms of specific financial support, the London Stock Exchange’s Green Economy Mark identifies listed companies and funds contributing to the global green economy by addressing key environmental objectives such as climate mitigation and adaptation, waste and pollution reduction and transitioning to a circular economy. More than 100 companies and funds with a combined market cap of $140 billion have received the Mark since its launch in 2019. In 2020, Yangtze Power became the first Chinese issuer to receive the London Stock Exchange’s Green Economy Mark, certifying that the company generates more than 50% of its revenues from green products or services, according to FTSE Russell’s Green Revenues Data Model.

In November 2021, the Bank of China listed $2.2 billion in sustainable bonds on the London Stock Exchange. The bonds include the Sustainability Re-Linked Bond (SRLB), which will fund loan projects linked to sustainable development in industries such as tourism, trade, manufacturing and warehousing.

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Like people in countries all over the world, Chinese consumers are experiencing the effects of climate change and unmanaged waste products first-hand and are concerned about the future; concerns that have only been strengthened by the Covid-19 pandemic. To varying degrees, these concerns are now translating into greater consideration of the sustainability credentials of brands and, ultimately, purchasing intentions.

“Walking the talk on sustainability issues is something that [brands] can no longer afford to ignore. Consumers nowadays have so much more information on the sustainability credentials of products, as well as the companies behind them and their impact on the wider community,” says Anson Bailey, Head of Consumer & Retail for ASPAC at KPMG China, on ‘Moving the Needle: Threading A Sustainable Future for Apparel,’ a research report by KPMG and Serai on sustainability in the apparel industry.

How much do Chinese consumers know – and care – about sustainability?

The lack of public environmental activism in China can paint a picture of a consumer base disinterested in sustainability, but this is not the case. A June 2022 consumer survey by PwC showed that 34% of Chinese consumers “often” or “always” agree that a business’ environmental actions influenced their decision to buy – in the US this figure was just 29%. The Covid-19 pandemic seems to have accelerated this trend. For example, a KPMG study in 2021 found that since the beginning of the pandemic, 68% of Hong Kong consumers and 65% of those from Greater Bay Area cities in Mainland China have become more conscious of a product’s origins.

Pollution, notably air pollution, has been a day-to-day experience for many people in China, with direct effects on their health. Product quality issues, particularly food safety scandals such as the 2008 melamine-contaminated baby formula scandal, have also caused a lot of concern among consumers. This has created a genuine desire to purchase products made from high-quality, durable or chemical and pollutant-free materials, which are usually better for the environment as well. “Chinese consumers are most concerned about sustainability for the following categories (ranking with the highest level of willingness to pay extra): furniture, homeware, clothes, and personal care,” says CBBC China Business Adviser (Consumer Retail & E-Commerce) Celine Tang.

Chinese business and e-commerce expert Sandrine Zerbib has noted that this points to a potential distinction between Chinese and Western consumers that brands should be aware of: the decision to purchase sustainable products is not only aimed at contributing to a greener environment but also aimed at protecting themselves from a polluted environment. This statement particularly applies to older, more affluent consumers, while millennial and Gen Z consumers can be motivated to purchase a product on sustainability credentials alone.

For all groups of consumers, the most obvious barrier to more widespread adoption is cost. As Tang explains, “[Chinese consumers] agree that sustainability is crucial yet only about half of them have ever spent money on it.” Data from The Silk Initiative’s TSI Navigator shows that only 30% of Chinese consumers are willing to pay a premium for sustainable products, especially if that premium doesn’t translate into better quality.

For British brands in China, although sustainability must come with other unique selling points, customer education is the most important thing to focus on – Celine Tang, China Business Adviser (Consumer Retail & E-Commerce), CBBC

How to talk to Chinese consumers about sustainability

Chinese consumers, like their counterparts in the West, are often sceptical of corporate sustainability claims, with Credit Suisse finding that more than 50% of Chinese consumers were distrustful of said claims. Transparency is key, especially when it comes to supply chains; a 2021 survey by The Silk Initiative found that ‘supply chain transparency’ was one of the sustainability claims that resonated best with Chinese consumers, ranking much higher than ‘fair-trade products’ or ‘safe working conditions.’

Brands also need to demonstrate actionable initiatives and a sense that sustainability is built into their DNA, something that could give younger, smaller brands, particularly in the luxury sector, an advantage over established players like Nike or Zara. Vanessa Wu from marketing solutions firm GustoLuxe emphasises the need for brands to find a sustainable cause they can own and then communicate honestly with consumers through influencers or public figures dedicated to that cause. She points to boot brand Hunter’s “For the World Outside” campaign, which has resonated well with Chinese consumers.

Education is also critical. “Chinese consumers do not have enough information about sustainable products and how sustainability is achieved through design,” says Tang. A lack of information about which products are available and what benefits they have is a key barrier to sales conversion for green products.

Live streaming is proving to be a very effective way of demonstrating a product’s eco credentials while also building a narrative about how consumers can use the product as part of a more sustainable lifestyle. San Francisco-based sustainable footwear maker Rothy’s and haircare specialists Olaplex have found success with this strategy on Tmall. Tmall has also launched features such as eco-friendly labelling on products and recycling initiatives for parcel packaging, to make it easier for consumers to make greener shopping decisions.

As Fashion Summit/KPMG’s report ‘Sustainable Fashion: A Survey on Global Perspectives’ concludes, “Given the well-documented need of [Chinese consumers] to have as much information as possible about their purchases, companies will not only have to take full responsibility for how their products are made and the conditions under which they are made, but also to tell the story of how all this happens in a transparent way.”

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Understanding the Chinese market can require a complex combination of experience, data, insights and industry contacts. But beyond analysis, there is a relatively banal subject that can greatly impact consumer behaviour and how they choose to spend their money – the weather.

The influence of the weather is something many China analysts track closely. For example, this year, many have noted that China’s National Climate Center has forecast extra frigid conditions for the country. The mercury will be lower than normal in the northern, northeastern and northwestern parts of the country (which already frequently see temperatures dip as low as -20 to -40°C), and even in southerly provinces like Guangdong.

Interest in the weather is not unique to China consumer analysts; in any country, colder weather can impact people’s moods and make them less likely to get out and spend. It can also change the way people do spend, providing a further boost to already surging e-commerce sales and other digital behaviours.

In many cases, components of a marketing plan can be tweaked to better accommodate frosty conditions. It can sway which products and formats we buy, from fashion to food and beverage, to the health and beauty products we seek. For example, consumers may seek out immune-boosting health supplements to fend off cold and flu outbreaks driven by the colder weather.

Last winter’s snow sports boom (stimulated, of course, by the 2022 Winter Olympics in Beijing) is likely to gather further momentum, and there will be opportunities for brands that make winter sports clothing or equipment, as well as hospitality brands with venues in popular winter sports destinations such as Heilongjiang and Jilin Province. On the other hand, consumers will be less likely to partake in recently popular hobbies such as camping and cycling. Communications that empathise with consumers over the weather through a clever, funny or emotional lens can help strengthen their connection to and preference for your brand.

When determining hero products and communications, the vast differences in weather conditions between cities and provinces further reiterates the importance of localising and targeting regionally. Consumers won’t need the same degree of outerwear in Shanghai as Shenyang, for example, and will be swayed by different products, messaging and imagery. Beauty buyers looking to protect their face from skin-chappingly dry winters in Beijing are likely to be looking for thicker, more moisturising creams than those in more humid, warmer Guangzhou.

The frosty winter comes on the back of a Chinese summer which registered its hottest August since records began and one of its lowest levels of rainfall in 61 years. These severe swings between the intense summer and the winter ahead will only convince more Chinese consumers of the threat of climate change. China is among the most at-risk countries in the world, with 85% of the population exposed to climate-related hazards by mid-century according to the UN. Yet, Chinese consumers aren’t as concerned as you may expect according to an international study by Gallup. Just 20% of people in China saw climate change as a “very serious threat” in 2021, down from 23% in 2019. The figure was 48.7% globally.

Nevertheless, many Chinese consumers – especially urban Gen Z – are taking note of the need to live more sustainably to help mitigate climate change. Some predict that this could start to have an impact on shopping festivals like Singles’ Day this year, and brands should keep this in mind when planning marketing and promotional activities going forward. Any sustainability initiatives should be sincere and backed by concrete evidence/actions or consumers may accuse them of greenwashing.

The two key takeaways for this are to consider whether there could be areas of your marketing plan worth tweaking to factor in the anticipated colder winter than usual; and how environmental and sustainability messaging differs in China from other parts of the world.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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As cities evolve, regenerate and modernise into futuristic high-rise and smart-enabled urban landscapes, it’s vital that developers and urban planners do not lose sight of the importance of preserving a city’s unique cultural heritage. Shougang Park in Beijing’s Shijingshan District (pictured in the lead image above) is a prime example of urban regeneration in action.

The UK and China maintain a high degree of complementarity and collaboration within the built environment sector. China’s rapid rise to become a world leader in green energy, the 14th Five Year Plan’s drive for sustained green growth and urbanisation, as well as China’s climate change commitments – notably its recent 2060 Net Zero target goal – offer UK companies opportunities within the environmental, infrastructure, and energy sectors. UK companies are highly respected in the Chinese construction sector and offer a wide range of expertise in priority areas, including the design and construction of green buildings, urban renewal programmes, green finance, low-carbon design, and eco-city development.

The UK’s strategy for carbon neutrality in the urban environment is focused on:

• Industrial decarbonisation: Construction of greener buildings, including industrial factories, office buildings, and domestic homes; developing advanced R&D in carbon capture, usage, and storage; and an overall net reduction of carbon footprint throughout the ecosystem.
• Renewable energy: Adopting cleaner nuclear energy and pursuing advances in materials for power generation.
• Clean transportation: Accelerating the transition towards zero-emission vehicles, low carbon charging infrastructure, R&D in clean Hydrogen fuel cell technologies and alternative biofuels.

CBBC, together with the UK’s energy, environment and infrastructure sector, which includes Aedas, Arup, Atkins, BRE, Foster + Partners, Savills, Mott MacDonald, RIBA, Wood, Zaha Hadid and ZEDfactory – are champions of sustainable collaboration in this area.

CBBC’s partnerships and programmes with national and regional government, free trade zones, business parks, new cities and technological development clusters continue to offer opportunities for UK companies to plug into key projects and share their experience and track record in regenerating and shaping urban landscapes.

Several key Chinese landmarks and infrastructure projects carry the hallmark of UK excellence in design and construction whether you are admiring the Guangzhou Tower or travelling through either of Beijing’s international airports.

How the UK is supporting sustainable development throughout China’s economic development zones (EDZs)

China continues to accelerate the development of forward-thinking policies across the business environment to attract businesses that deploy green and zero-carbon methods. This is not only applicable to inward investment targets for zones, but also draws in expertise from the UK to ensure the development of low carbon and green solutions at the heart of their concept.

ZEDfactory has, at the project design phase, provided zero carbon and green architectural and product design solutions to a growing portfolio of clients in China, including the Datong Industrial Park, the Qinglingtan Industrial Park, and the Jingdezhen Wentao Cultural Exchange Centre, conceptualising solutions that ensure the workspaces and surrounding areas are cool and well air-conditioned during the hot summer months.

This has included orienting buildings in a way that reduces direct exposure to the sun and installation of photovoltaic hoods and roofs to help with ventilation. Other proposed solutions have included building parking lots designed to be inclusive for photovoltaic vehicles and bicycles, using breathable insulation on the walls, installing low-speed cooling fans, and integrating a smart natural ventilation system, A++ rated equipment and LED lighting.

UK companies leading innovations in green leisure and lifestyle

BREEAM is the world’s foremost and most widely applied environmental assessment method and rating system for buildings, with close to 600,000 buildings certified with BREEAM assessment ratings and over 2,310,000 registered for assessment since it was first launched by BRE in 1990.

As a globally recognised third-party certification, BREEAM not only encourages and supports the sustainable improvement of buildings but also helps investors understand their asset conditions and improve the resilience of assets in a more efficient way. At present, BREEAM certification has been applied to thousands of assets in several countries to benchmark, improve and certify its performance, and to demonstrate to the public the high standard of environmental and social governance of its enterprises. In China, high profile projects have included Club Med Joyview Qiandao Lake Resort and Ikea’s Jing’an Store. Ikea also decided to use the BREEAM sustainable building certification to advance the company’s efforts in championing sustainability, setting the following goals for the construction of their Jing’an Store to meet the BREEAM standard.

For example, by adopting BREEAM at the heart of its construction, the Club Med Joyview Qiandao Lake Resort has maximised the preservation of the site’s ecological characteristics while maintaining synergy between nature, architecture, and people.

Making an impact through internationally recognised education and qualifications

China has a rich talent pool of architects, and the Royal Institute of British Architects and the Chartered Institute of Building ensure that they have access to world-class professional development from the UK and enhanced career opportunities.

The Royal Institute of British Architects (RIBA) recently launched its International Talents Hub and is pursuing a comprehensive international strategic cooperation with the Lin Gang Special New Area in Shanghai: enriching partnerships that they have been developing across China; opening access to opportunities for aspiring architects; and aligning with China’s infrastructure and regional development policy goals.

Furthering the UK-China partnership

These examples highlight the UK’s track record as China’s long-term partner and highlight why our respective countries should continue to collaborate on regenerating urban landscapes; enhancing low carbon construction in the built environment; advancing green manufacturing; adopting renewable energy; and enabling access to first-class professional qualifications.

For further case studies and insights, please visit the links to access ‘In The Zone’ and ‘Targeting Net Zero’. These two reports present the role of UK-China business working in tandem to complement each other’s competitive advantages.

Whether you are a British or Chinese company working in the built environment sector, or an ETDZ seeking further collaboration with the UK, please contact our Industrial Economy sector leads Mark Xu (China) and James Brodie (UK).

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Like people in countries all over the world, Chinese consumers are concerned about pollution, waste products, and the environment. To varying degrees, these concerns are now translating into greater awareness of the sustainability credentials of brands and, ultimately, purchasing intentions. 

Pressure to change is coming from more than just the consumers themselves. Governments around the world are introducing new regulations regarding how products are produced and what materials can be used. At the same time, Environmental, Social and Corporate Governance (ESG) factors have become a key focus for the investment community. 

 

Given the well-documented need of young people to have as much information as possible about their purchases, companies will not only have to take full responsibility for how their products are made and the conditions under which they are made, but also to tell the story of how all this happens in a transparent way

“Walking the talk on sustainability issues is something that [brands] can no longer afford to ignore. Consumers nowadays have so much more information on the sustainability credentials of products, as well as the companies behind them and their impact on the wider community,” says Anson Bailey, Head of Consumer & Retail, ASPAC, KPMG China, commenting on a recent research report by KPMG and Serai on sustainability in the apparel industry. The report, entitled ‘Moving the needle: Threading a sustainable future for apparel,’ offers insights that can be applied to a wide range of industries. 

How much do Chinese consumers care about sustainability?

Changing consumer attitudes are a major reason why sustainability has risen up the agenda in China for many businesses in the apparel industry and beyond. 

When thinking about what defines sustainable products, Chinese consumers point to factors such as high-quality, durable materials that require little after-care, chemical and pollutant-free products and processes, the use of resource-saving technologies, and the use of recycled materials.

Consumers are increasingly willing to pay more for sustainable products, so it can be potentially lucrative for brands to differentiate themselves in this way. This trend appears to have accelerated during the Covid-19 pandemic, with consumers having taken the opportunity of closed stores and more time at home to reassess their consumption habits. For example, a KPMG study in 2021 found that since the beginning of the pandemic, 68% of Hong Kong consumers and 65% of those from Greater Bay Area cities in mainland China have become more conscious of a product’s origins. According to a 2019 survey by Fashion Summit and KPMG, consumers in Shanghai ranked a brand’s environmental friendliness message higher than any of the other cities surveyed. 

Walking the talk on sustainability issues is something that brands can no longer afford to ignore.
– Anson Bailey, Head of Consumer & Retail, ASPAC, KPMG China

However, there are still differences between the environmental considerations and the actual behaviour of consumers. Cost can be a key obstacle to consumer adoption of sustainable products. The Fashion Summit and KPMG survey found that worldwide, only 13% of people are willing to pay more for sustainable fashion (the figure was slightly higher for consumers in Shanghai at 22%). Nevertheless, research indicates that businesses with higher sustainability scores have a lower cost of capital — savings that can then be passed on to consumers — and according to analysis by KPMG, a sustainable apparel business can expect to have an average increase in their net profit of 1-1.5% for brands, and 1.5-2.5% for suppliers.  

How to create supply chain transparency to build consumer trust in sustainability

Supply chain transparency is increasingly becoming a key part of any industry’s efforts to become more sustainable. It is therefore not surprising that KPMG and Serai’s survey found that executives ranked achieving end-to-end supply chain transparency as the single biggest issue that their company needs to solve in the short to medium-term.

“Consumers are asking more questions about not just where the product was manufactured, but also the raw materials that were used and where these came from. Being 100% transparent will lead to more orders for suppliers,” says Edgar Tung, COO, Esquel Group, quoted in the KPMG/Serai Report. Indeed, a 2021 survey by The Silk Initiative found that ‘supply chain transparency’ was one of the sustainability claims that resonated best with Chinese consumers, ranking far above ‘fair-trade products’ or ‘safe working conditions.’

To start moving towards a sustainable future, companies need to adopt a comprehensive, structured and systematic approach to change. KPMG and Serai’s report suggests that companies take into account five key considerations: 

1. Make sure all stakeholders are on the same page 

To actually achieve sustainable growth, every relevant process, function and relationship in the business should be aligned towards the same clear goal. Business stakeholders across the entire organisation need to be involved in setting enterprise-wide aligned transparency targets. 

2. Create an achievable framework 

Once an overall vision for supply chain transparency has been defined, a strategic framework needs to be designed. A detailed and practical approach to how to achieve the desired goals is also key. For example, data structures and formats need to be drawn up and minimum data requirements set, the type of solutions needed should also be agreed on and potential partnership or outsourcing requirements laid out. 

3. Construct a fact-based supply chain 

Companies should start by gathering information on the origins and network flows of all materials, as well as map out supply chain trading partners and how they work together, to create a detailed picture of the supply chain. Connecting with related parties can be highly impactful in building trust and strengthening relationships across the supply chain, which in turn will facilitate the willingness of stakeholders to share information. 

4. Collect and consolidate key information

The gap between intent and achieving transparency is driven by a lack of access to quality and consistent data. Companies need to identify where and how data is collected – both internally and externally – and create rules for storage/sharing rules so that data can be accessed by all participants of the supply chain. This process should be supported by relevant technologies and tools. 

5. Use data to identify and manage risks 

Consolidated data and clear protocols should give companies the information they need to take concrete actions and manage any risks arising during the process of supply chain transparency. This can be achieved with tools from third-party solution providers or in-house systems. 

The future of sustainable consumption in China

“The COP26 climate summit has highlighted the need for change. Greater transparency means that brands will be held accountable, however, it also opens up opportunities to better manage inventories, introduce more agility, and achieve greater collaboration across the entire supply chain,” says Bailey. 

Like many consumer segments in China, young people are driving increased interest in sustainable products and brands. As Fashion Summit/KPMG’s report ‘Sustainable Fashion: A Survey on Global Perspectives’ concludes, “Given the well-documented need of young people to have as much information as possible about their purchases, companies will not only have to take full responsibility for how their products are made and the conditions under which they are made, but also to tell the story of how all this happens in a transparent way.”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

Portions of this article were adapted from KPMG and Serai’s 2021 report, Moving the Needle: Threading a Sustainable Future for Apparel

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Located in Eryuan County in southern Yunnan Province, the Diageo Eryuan Malt Whisky Distillery will produce Diageo’s first China-origin, single malt whisky. Details of the £55.2 million investment were officially unveiled at a special ceremony in Eryuan on 2 November which was attended by provincial and local government officials, industry representatives and the local community.

“China is the world’s largest beverage alcohol market and the demand for whisky is growing rapidly among middle-class consumers who are keen to further discover and enjoy fine whiskies,” said Sam Fischer, President of Diageo Asia Pacific and Global Travel. [The Eryuan distillery is] another significant step forward, and one which builds upon our local insights and combines those with Diageo’s global whisky expertise in order to delight the next generation of Chinese whisky consumers.”

At more than 2,100 meters above sea level, the site of the 66,000 square meter distillery was carefully selected for its temperate climate, rich natural biodiversity, and access to natural spring water that is a source of the second-largest highland lake in Yunnan, Lake Er (also know as Erhai Lake).

Fischer added, “The natural surroundings and the Eryuan landscape will allow us to craft a world-class, China origin, single malt whisky that will capture the imagination of premium whisky lovers in China.”

Diageo’s ‘Society 2030: Spirit of Progress’ sustainability action plan will shape the design and development of the distillery. Renewable and clean technologies will be used in the distillery to ensure it is carbon neutral, recycles all the water it uses and is a zero-waste site.

The site will feature an immersive and interactive visitor centre that will attract whisky enthusiasts and boost the local cultural tourism industry. The sustainable and innovative design of both the distillery and the visitor centre will incorporate local cultural elements and embrace the region’s natural landscape. Construction is expected to begin in early 2022.

Explore membership at CBBC here or email Membership@cbbc.org with your enquiry

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Stephen L. Morgan is Professor of Chinese Economic History at the University of Nottingham and Associate Provost for Planning at the University of Nottingham Ningbo, China. He was seconded to the university’s Ningbo campus until last year. After visiting China in 1981 as a journalist, he worked as a foreign correspondent and newspaper editor in Australia, China and Hong Kong before moving into academia and teaching at the University of Melbourne.

His new book ‘The Chinese Economy’ (Columbia University Press) looks at 40 years of Reform and Opening Up and 40 years of political leadership in China, with a focus on China’s efforts to ensure it is the first developing economy to avoid the “middle-income trap”. The book looks back over China’s recent economic decision-making to see how the economy got where it is today, and then fast forwards to the challenges and stresses it faces in the immediate future.

Paul French caught up with Stephen Morgan to ask him his views on China’s economy today and what the next few years might yield.

You show clearly that China has become ‘an upper-middle-income economy.’ Could you explain briefly how that happened and what that means to people and businesses in terms of spending power and consumption?

China’s great transformation from a very poor country in the 1970s to an upper middle-income one in the 2020s was the product of recurring structural change. First, rural reform unleashed peasant market-based incentives, raised output and incomes, and set the stage for market-oriented reforms of the moribund urban state-run economy. Second, China re-joined the world economy, welcoming foreign direct investment (FDI) and multinational enterprises (MNEs). This coincided with the expansion of MNE production networks, which we now call global value chains. Millions of workers left agriculture for jobs in factories and services. That accelerated after China joined the WTO in 2001, which forged a new urban middle class.

Nothing demonstrates this better than private car ownership, which increased from 3.7 million vehicles in 2000 to 207.1 million in 2019. Despite talk of consumption-led growth, government policies promote state investment. That needs to change if China’s debt, about 280% of GDP, is not to balloon further. Increased household consumption will raise demand for products and services. Without such changes, China’s growth might slump to reign in debt and Chinese consumer spending power will fall dramatically. That won’t be good for domestic or international firms. 

Stephen Morgan in China in 1981

You chart the issues around the sustainability of China’s economic modernisation – pollution, effluent-filled waterways, contaminated farmland. Many of these have arguably been tackled, so what are the sustainability threats in 2021?

The ‘airpocalypse’ that shrouded Chinese cities in poisonous smog in the winters of 2012 and 2013 might have been largely controlled, but China still faces big environmental challenges.

Economic growth means increased energy use and more greenhouse gas (GHG) emissions. China is an energy giant and the largest emitter of greenhouse gases. It is the largest producer and user of coal, the largest importer of oil, and the largest producer of ‘clean’ energy (wind, solar and hydropower generation). On a per-capita basis, China consumed 2.4 tonnes of oil equivalent (TOE) in 2018 – about one-third the level of the US, half that of Russia, two-thirds that of Germany and 81% of the UK. But it is hugely inefficient, burning 0.3 TOE for each $1000 of GDP, which was 2.5 times the US, 3.5 times the EU and 4.1 times Japan.

The problem is that rich countries are high energy users: without a shift in energy type and reduced emissions, as middle-income economies like China become richer, they will use more energy, which will worsen climate change. Whatever the consequences for the world, those for China will be devastating. A one-metre rise in sea level will inundate parts of the lower Yangzi, for example, rendering the economic powerhouses of Shanghai, Hangzhou and Ningbo uninhabitable. The economic loss and dislocation and the vast migrations of people is a crisis neither China nor the world can allow.

You note that innovation is absolutely key to addressing many of the challenges China faces. What are the challenges when trying to foster greater innovation?

The recent 2020 census contains a part answer. It reports the average years of schooling for those aged 15 years or more was 9.9 years, up from 9.1 years in 2010. In comparative terms, that means most of China’s workers are high school dropouts. Today’s level is a bit below Japan and the EU in 1970, and well below the USA.

A one-metre rise in sea level will inundate parts of the lower Yangzi, for example, rendering the economic powerhouses of Shanghai, Hangzhou and Ningbo uninhabitable

Despite the huge investment in higher education – China graduates more engineers, scientists and PhDs than any other country – the workforce on average is not equipped with the higher-order capabilities required for a modern knowledge economy. Much as China’s government pours money into R&D, which deliver some successes and quite a few failures too, the educational weaknesses in the workforce will hinder the forging of an innovative economy.

China has been very successful at incremental and process innovation and less at novel innovation. The latter relies as much on serendipity and entrepreneurialism as it does on state initiatives. But there needs to be the freedom to fail and to criticise bad outcomes. In my view, constraints on contrarian thinking combined with insufficient general education and heavy-handed government mandates will hinder China in fostering innovation.

What is the status of urbanisation, which was such a key factor in modernising the economy? Have we reached the end of that process or will cities be ever-enlarging?

Between 1978 and 2020, urbanisation increased from 18% of the population to about 62%. More than 800 million people live in Chinese cities. China plans to move another 200 million into cities in the next 15-20 years, which will make it a country of more than one billion city dwellers. Already vast areas of China are joined into urban conurbations, such as the lower Yangzi delta with Shanghai at its apex. A web of highways and fast trains join Nanjing, Suzhou, Shanghai, Hangzhou and Ningbo into an economic powerhouse whose regional GDP is more than the combined GDP of the Beijing-Tianjin-Hebei and the Pearl River Delta conurbations.

There is still much potential in urban growth. An important challenge, though, is to make cities sustainable. Middle class Chinese have abandoned their bikes for cars, and new suburbs are almost American in their design, with car-friendly boulevards and the ensuing congestion, too. Although many cities boast modern transit systems, the challenge is the last mile between stations and home or office. The bike-sharing apps that took off in China in the mid-2010s was an attempt to try to solve this dilemma.

China’s rural economy has changed massively, with new methods of agriculture, crop diversification and a large number of rural dwellers leaving the countryside. What is the future of agriculture in China?

That’s an interesting question. I’m not sure I have an answer. If you go into a village near the major cities of East China, like Ningbo where I lived until late 2020, you will barely see a man or woman of working age. The village is full of old folks and a few pre-school children. The fields are often not tended, or if they are, they are contracted out. Official statistics say the primary sector still accounts for about 7% of GDP and employs about 25% of the workforce. Probably less than half that number still work on farms and mostly in central and western regions where there are fewer non-farm jobs. 

The government is eager to retain a degree of food security, especially in grain, but few people want to farm and even fewer in low-value cereal cropping. A major hindrance to the modernisation of farming is the household registration (hukou) system that prevents rural people from settling permanently in cities. They hang onto their land-use rights in the village as insurance should they be expelled from the city, and that inhibits the consolidation of plots and the adoption of more efficient farming.

It’s hard to work out if we’re still at the early stages of modernisation or whether the trend and impetus have peaked. Obviously, there are still many things to do, to improve – what would your wish list of economic change in China be for the next 5-10 years?

Any humane observer of China would wish to see China continue to develop and its people share in a higher standard of living. Over the past 40 years, pundits have mostly got China wrong: who in 1980 would have imagined the growth and change to come, let alone the Communist Party overseeing a market-led transformation of Chinese socialism?

The challenge for economic change is not economic but political. To enable innovation to grow the economy, tackle the environment and improve the standard of living, China will need to reform the state sector. Instead, state Goliaths are strengthened and the private sector reigned in. Enforcement of competition laws recently against Alibaba, Tencent, Meituan and others, which was long overdue, is not just about improving the market, but about social control and disciplining Big Tech and the many private sector billionaires whose wealth and charisma, such as that of Jack Ma, potentially could become an independent opposition to the party. At the end of the day, party political survival will trump good economic policy, as it does even in liberal democracies when vested interests get the ear of a PM or President.

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The ocean is our greatest source of untapped wealth but failure to develop marine industries sustainably will harm life for all, writes Charlotte Middlehurst

Billions of people around the world depend on the seas for nutrition and jobs and the ocean’s potential to generate wealth is vast. According to the Organisation for Economic Cooperation and Development, a group dedicated to advancing world trade, the ocean contributes £1.15 trillion to the global economy each year. Of this, fishing alone produces an estimated £274 billion a year (that’s around 171 millions tons of fish), according to the Food and Agricultural Organisation of the United Nations.

In coming years, the European Commission has identified that the ocean economy will grow faster than the general economy, doubling in size by 2030 when compared to today’s levels. By 2030, it could be worth as much as £2.25 trillion (value added) – or 2.5 percent of the world’s GDP.

All this wealth is being driven by advanced technology and market conditions that support a free trade in commodities. Fishing and farming company operations are scaling up with state-of-the-art industrial trawlers and sophisticated nets that extend miles into the ocean. Climate change is causing Arctic ice to melt, opening new sea lanes from East to West for shipping companies and  tour operators to exploit. Meanwhile deep-sea robots are also forging new frontiers for bio-prospectors and mining companies.

At the same time, the ocean faces unprecedented risks. Around eight million tonnes of plastic waste enters the sea each year, killing sea creatures and birds and entering our food chain. Ninety percent of the world’s fisheries are now either fully fished or overfished according to the UN’s food body, and climate change is disrupting sea currents, killing off coral reefs and causing sea levels to rise.

The challenge of managing the environment, tourism and industry around the coast demands new approaches in policy, technology and measurement

Professor Richard Williams is an expert on the ocean economy and Principal of Heriot-Watt University in Scotland. He says growth will be concentrated in maritime and coastal tourism (by value and employment), offshore wind energy (by value), and aquaculture (by share of human consumption of fish and rising). Additionally, Williams identifies emerging areas with potential for significant future growth as wave and tidal energy, seabed mining, offshore aquaculture and biotechnologies.

Sustainability at the centre

The ‘Blue Economy’ is emerging as an international concept that encourages better stewardship of the ocean and of ‘blue resources’. It underpins the thinking behind the UK-led Commonwealth Blue Charter that highlights the connection between the ocean, climate change and the health of life on land. It also supports the United Nation’s Sustainable Development Goals (SDGs), especially SDG14, ‘life below water,’ and China’s governing principle of ‘ecological civilisation’ (economic growth in harmony with nature, rather than at odds with it).

At its heart is the notion that ambitious international cooperation is needed to sustainably manage and preserve the ocean for the sake of present and future generations. There are clear opportunities for China and the UK to lead on the development of a sustainable Blue Economy, and these are vital if we are to guarantee responsible management of marine resources.

“With its significant coastline and marine territories the Blue Economy will be of prime importance to China. The challenge of managing the environment, tourism and industry around the coast demands new approaches in policy, technology and measurement. [For the UK] the connections with China will draw on our skills in marine robotics, sensors, and environmental technologies,” says Professor Williams.

The ocean contributes £1.15 trillion to the global economy each year

Blue ambition

China has signalled its intention to lead the Blue Economy over the next century. Its Belt and Road Initiative – a trade and infrastructure project spanning 70 countries — has its very own maritime arm. The Maritime Silk Road encompasses ports in Djibouti, polar shipping lanes, and Latin American fishing hubs to name but a few.

In line with this, 2018 has so far seen a slew of ocean policy reforms and pledges of cooperation between China, the UK and the broader international community.

This spring, Prime Minister Theresa May presented President Xi Jinping with a Blue Planet box set and a specially recorded message from Sir David Attenborough when the two met in Beijing. A gift intended to signal both countries’ determination to stop the scourge of ocean plastics.

In April, China restructured its government ministries with huge implications for the management of marine environments. Its key body, the State Oceanic Administration, was dissolved and its roles reallocated in an effort to streamline and reform government oversight. In May, the world’s first Ocean Risk Summit was held in Bermuda, attended by Richard Branson and Prince Albert of Monaco, to discuss how to mitigate ocean risks and channel blue capital. In July, China and the European Union signed, for the first time, an Ocean Partnership that aims to enhance ocean protection and support thriving business and research exchanges.

The seas undoubtedly represent a new frontier for UK-China collaboration. And investing in blue industries could ensure a leadership position for both countries. But failure to adopt a sustainable development mode could result in disaster for all.

Blue growth

Scotland is an example of a country that has pioneered sustainability in its fishing sector over the past two decades, with powerful results. Around half of the fish landed at the country’s biggest market in Peterhead is Marine Stewardship Council accredited; stocks of key fish are rising, and the pressure on those stocks from fishing vessels is declining, according to the Scottish Fishermen’s Federation.

“Those are trends that we are keen to see continuing, not because we want to be seen to be ticking the right boxes, but because it is good for business and fish stocks,” says Bertie Armstrong, Chief Executive of the Federation.

At present the greatest risks would come from a failure on the part of the UK government to secure a creditable deal in the Brexit negotiations on behalf of UK fishermen, he says: “Brexit, and the new fisheries regime that will follow, will present new opportunities for Scottish-Chinese trade links.”

China restructured its government ministries with huge implications for the management of marine environments

So does the current moment of global trade rebalancing (US-China trade wars, Brexit) offer an opportunity to re-examine the blue growth mode and avoid some of the mistakes made on land?

Torsten Thiele, founder of the Global Ocean Trust and a specialist in blue finance believes so.

“A sustainable Blue Economy (where ocean resources are used equitably to build economic growth) depends on resilient and sustainable business models,” says Thiele. “Science suggests we need to strictly protect at least one-third of the global ocean. The solution is to develop blue economic capital assets, and these need investment. China’s role in this new global processes is critical.”

We should remember that these assets are worth more alive than they are dead.

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