THE middle class is theincreasing focus of attentionfor both consumer spendingand social harmony.
MICHEL Nieto peruses – and is sometimes perplexed – by the series of reports on China’s middle class produced by domestic and foreign consultant firms as they try to pigeonhole the characteristics of this particular stratum of society in the world’s fastest-growing market.
For the CEO of global luxury watch brand Baume & Mercier, the objective is clear: “Our target consumer group is upper middle-class people, so it is very crucial for us to know the size, spending power and preferences of those people.”
That’s easier said, or wished for, than done.
There is broad consensus that the middle class is the strongest driver of consumption, as in many developed regions, and very few businesses can afford to ignore them, says Xiao Mingchao, chief researcher of national research – China’s New Middle Class Life Survey and research director of Shengshi Indexes Data Mining & Strategy Consulting Co Ltd.
There is no arguing that a substantial middle class has taken shape in China – and is likely to keep growing – given the country’s galloping economic growth and the government’s efforts to expand their ranks in a bid to maintain social harmony.
But who is the middle class? The definition is elastic, to say the least.
A couple with one child – on whom no expense is spared – an apartment in the city, no pets (recent restrictions and high cost of owning them) and one car mainly used for weekends getaways. This could well be a typical urban Chinese middle class family.
In 2001, the State Information Centre predicted that by this year, about 200 million would have joined the middle class.
In a study, Nanjing University sociologist Zhou Xiaohong and members of his team interviewed more than 3,000 mainlanders in several large cities, including Beijing, Shanghai and Wuhan, between 2003 and 2005 – and found that 85.5% of the respondents identified themselves as middle class.
In an effort to profile the middle class, the National Bureau of Statistics (NBS) in 2004 said a typical middle class family should earn between 60,000 (US$7,500) and 600,000 yuan (US$75,000) a year. NBS has painted a sketch for them: a set of people with education, a sought-after career or job, decent income and some social standing with spending power.
Based on these criteria, the mainland’s middle class will expand from 5.04% last year to 45% by 2020.
According to a research report by McKinsey & Co China, the middle class will experience a boom between 2010 and 2020 in China, with monthly family income ranging from 25,000 yuan (US$3,125) to 40,000 yuan (US$5,000) in 2010; and from 40,000 yuan (US$5,000) to 100,000 (US$12,5000) in 2020.
By 2025, the number of China’s middle-income earners is estimated to be 520 million – more than the population of the United States – making up over half of the country’s urban dwellers, with combined disposable income of 13.3 trillion yuan (US$1.7 trillion).
McKinsey & Co predicts that the middle class’ biggest spending will be on housing and medical care in the coming years. By 2025, expenditure on the two sectors will take up a substantial chunk of a family budget.
Nanjing University’s Zhou said that similar to the middle class in developed nations, China’s middle-income earners face huge social and psychological pressures. They need relaxation via entertainment, travel, community activities as well as medical care and consulting.
McKinsey & Co also finds that China’s emerging middle class are younger than those in the developed nations and are willing to spend more on luxury commodities than their counterparts in the US and Europe.
Goldman Sachs expects China to surpass Japan to become the world’s biggest market for luxury goods by 2015, compared with its current status as the fourth.
And Michel Nieto is quietly confident. The luxury watch is ticking nicely.
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