The Chinese middle class is getting richer
Approximately three billion people, coming from the 17 most important emerging countries, will join the middle class in 2050. The rapid growth of the Chinese middle class, which began in the early 2000s, has led to a steady increase of Chinese consumers’ spending. The boom is occurring and today’s many signs show that the investment is worth.
In recent years, the Chinese economy has grown at a frenetic rate. Looking at families’ spending in absolute values, spending per capita in Europe was 6.7 times larger than in China in 2005, while today the multiplier has decreased to 1.6. Even if private spending has exceeded exports and investments in terms of percentage of GDP, thanks to recent development policies, its weight on Chinese GDP is still lower than the West. However, unlike European countries, the increasing of Chinese spending is balanced by the strong and constant growth of investments. Currently, Chinese GDP is equal to 6.7% and the government is expecting a spending boost from the middle class. According to a survey by the Chinese Academy of Social Sciences in 2012, the middle class represented 23% of the whole People’s Republic, below the average of developed countries. Current data shows that the middle class is not yet the majority of the People’s Republic and prudent estimates confirm that this category consists of about 120 million to 350 million people. The Chinese middle class has a higher level of education, is informed, accustomed to travel and is oriented towards the purchase of technological products, the use of social networks and online shopping. In this context, it is relevant the study by Goldman Sachs, which identified the seven key consumer desires of Chinese middle class in 2013: look more beautiful, eat better (major spending), a better home, better mobility/connectivity, have more fun (the one with the greatest capacity for expansion), well-being (education, health) and some luxury goods. The global middle class of the future will be very young and consumer choices will be different too.
Despite the economic growth, Chinese people are certainly not without worries. According to a survey by the Pew Research Center of 2015, their first four fears are corruption, air pollution, water and the gap between rich and poor. In fact, while the middle class is increasing in size, the problem of poverty is still prevalent. Today, the average income in the cities is about three times more than in the countryside. Moreover, wages are significantly higher along the east coast, where the middle class is concentrated, than in the internal provinces. In 2013, the McKinsey report predicted that 75% of the urban consumers of the People’s Republic will belong to the middle class in 2022. In this regard, the 13th Five-Year Plan, which sets the Country’s economic and social development goals, foresees that all the inhabitants of the countryside will exceed the poverty line by 2020. Furthermore, Chinese authorities have recently announced a 142 billion dollars’ investment to relocate 16 million people out of the poorest areas and 150 billion dollars for provincial (infrastructural) projects to boost growth across the country.
Being able to capture this segment can mean huge volumes. However, companies must be aware of having to face a very fierce competition from local players, which are already adapting to new market demands. The challenge is not impossible, and numerous cases of foreign companies can show that. The truth is that China is far, different and difficult, but not addressing the challenge today is a “strategic suicide”. There is a consumer boom supported by the willingness to develop new industries and sectors from the government. Many Chinese areas, that are actually bigger than many European cities, offer a lot of potential from the point of view of the facilities that the government is preparing to encourage investments.
Luca Masoero