Green Consumption in China: A Catalyst for Business Growth?

20 August 2024 / Report

Trusted Insights for What’s Ahead^TM

^{China’s climate transition will continue, but at a slower pace than anticipated as the government turns its attention to a slowing economy. Decarbonization progress will very likely be incremental and carefully crafted to prioritize areas that can deliver on China’s climate ambitions while also contributing to economic growth. Green consumption has recently emerged as such an area. Since 2022, policy documents identify it as a key component of China’s "high-quality development" strategy.}
^{There is a significant gap between the current state of China’s green products market and the government’s ambitious target of making these products prevalent by 2030. Reaching this goal requires addressing issues around availability of information through effective green labeling, standards, and certification, as well as uneven market penetration and affordability of green products. This presents an opportunity for companies with the necessary expertise, technologies, and product portfolio to contribute towards China’s green transition and grow their business. The market still has to be educated, but early movers will benefit from strong government support.}
^{Chinese consumers exhibit strong demand for cost-effective green products, but affordability is an issue. Surveys suggest that most Chinese consumers are interested in buying green products, and many have already made purchases. However, under current economic conditions, the price premiums that green products command may discourage their purchase. In general, Chinese consumers are becoming more price-conscious and are trying to get as much bang as they can get from their buck – regardless of whether they are environmentally conscious or not. As such, companies need to develop more cost-effective green product portfolios to appeal to Chinese consumers.}
^{To effectively reduce green premiums, companies should strategically leverage the financial support the government is providing to drive R&D, which is the long-term solution to reducing prices and enhancing competitiveness. Indeed, many companies are using this support to reduce prices and maintain short-term profit levels. But the problem is that this support may go away at some point. Instead, companies can match the financial support they are receiving with increasing R&D investments. As the semiconductor industry shows, technological innovation and breakthroughs are imperative to significantly reduce premiums. Importantly, the support that the government is providing (e.g. subsidies) is available to foreign MNCs.}
^{Overall, businesses are advised to develop a playbook to secure business opportunities as the green products market expands. Companies should build opportunity-oriented mindsets, leverage opportunities arising from national ambitions, develop product portfolios tailoring to Chinese consumers’ needs, and monitor the key guideposts of green consumption policy development.}