With China’s export-driven economy hitting diminishing returns on account of the strengthening of the Renminbi, escalation of domestic wages and the weakness of developed export markets, both companies and the government have been looking to the development of the country’s internal consumer economy to spur on future growth.

Until recently, however, the prospects for internal growth have remained bleak. With one of the highest savings rates in the world, and outrageous housing costs, consumption in China has lagged, actively decreasing as a percentage of income from an average of 40 percent in 2000 to an average around 32 percent today. During that time real incomes have soared, so while consumption as a percentage of income has decreased, real consumption has gone up massively- with retail revenues increasing from 2009 to 2010 alone by a level equal to the entire volume of China’s retail sector in 1995. Yet, even these levels are insufficient to sustain China’s boom.

There are considerable signs that this may be changing. Despite increased inflation, reaching over 6 percent this year, a new study from McKinsey & Company shows that consumer confidence in China is rising dramatically, spurred on by renewed optimism in people’s economic situations- 58 percent of respondents believe that their income will increase next year, against only 39 percent who believed that it would in the company’s 2010 survey. While believing that better times are ahead doesn’t necessarily mean they are, this is a sign that Chinese are more confident in years past in the security of their income. Based on this, and other results from the survey, what other trends can we identify right now?

-Consumer spending is clearly up. While inflation is cited as the biggest driver, there are others as well- consumers are purchasing more expensive goods, in larger quantities, more frequently than ever. Very few, however, are first-time buyers of products in given categories; both a sign of increased market maturity, and decreased economic mobility.

-While first-time buyers are down on the whole, first-time buyers in interior cities, including third and fourth-tier cities around the Chengdu cluster, are up, especially in the personal care segment. This is interesting, because it represents a turn away from traditional rural demands (like white goods and other tools and appliances) and towards the fast-moving consumer goods sector.

-Brand loyalty is diminishing. While branding in China remains as important as ever, clear market leaders are fading before an onslaught of new competitors. The average Chinese consumer now typically chooses among three to five preferred brands in a given category- up from two to three only five years ago.

This is China’s new consumer landscape- more diverse, more regional, and representing greater quantities of product than ever. These trends are expected to continue, and if your business is to keep up,  diversifying outside of first-tier cities and paying serious attention to your online presence and sales channels will be essential in coming years.