Published on 18.11.2011
China in Focus: How big is the middle class?
The middle class, while growing rapidly, remains small and geographically disparate.
The emergence of China as a mass consumption market is a mainstay of any article arguing that the country is on track to become an economic superpower. But it will be decades before the Chinese middle class matches its counterparts in the US and Europe as a consumption force. The middle class, while growing rapidly, remains small and geographically disparate, thus continuing to present challenges to foreign companies seeking to tap growing consumption demand.
Over-hyped consumption data
Government figures claiming double-digit percentage increases in retail sales overstate the increase in private consumption spending in China. Government figures show the category of "retail sales" rising by 18.3% in nominal terms (or 14.8% in real terms) in 2010 to Rmb15.7trn (US$2.3trn). However, retail sales data far exceed private consumption spending figures because wholesale and some government purchases are included in the data.
The breakdown of GDP by expenditure shows private consumption spending of only Rmb13.3trn, a real increase of only 5.1%. At more than 5 percentage points below real GDP growth, this means the share of private consumption in the overall economy is falling. This continued into the first three quarters of 2011, when real GDP grew by 9.4% year on year. In contrast, per-head consumption of urban households rose by just 6.7% year on year, even as total retail sales grew by 17%.
How large is the middle class?
As such, a mass-consumption culture has yet to fully emerge in Chinese cities. There has been rapid growth of a still proportionately small middle class, but the definition and size of this key group of consumers remains debatable. The phrase "middle class" is as much a cultural concept as an economic one. The Chinese Academy of Social Sciences (CASS), a government think tank, recently published figures in its 2011 City Blue Book claiming that 37% of China's urban resident population, or 230m people, fell into the category of "middle class". However, this figure is slightly misleading to retailers looking to tap into the Chinese market. The definition of "middle class" used in that source is households with per head disposable income of Rmb16,300-37,300 a year in 2009 (around US$2,400-5,500 at the then prevailing exchange rate). However, a disposable income of US$2,400 a year is unlikely to be what a Western business has in mind when it aims to make sales to "middle-class" Chinese.
Full article at EIU.com