The “middle class” – although people may have widely varied opinions about who they are or how they live, one thing we can all agree on is that they are the driving forces behind consumption.
In a recent report, consulting firm McKinsey & Company defines the Chinese middle class as those who earn 60,000 – 229,000 rmb ($9,000 – $32,000) a year. Within this group, the upper middle class are those with household incomes in the 106,000 – 229,000 rmb range and the mass middle class are those with household incomes in the 60,000 – 106,000 rmb range.
It bodes well for retailers in China to understand the this middle class – who they are, where they live, and what they like — but as the Chinese economy matures, the characteristics of its middle class are also changing. Here is a quick look at how the Chinese middle class is evolving:
There is More of Them
In 2000, 4 percent of urban Chinese households were considered middle class. Fast forward to 2012, this percentage ballooned to 68 percent. People are also climbing up the income ladder within the middle class itself. In 2012, just 14 percent of urban households were upper middle class; McKinsey & Co. predicts that by 2022, 54 percent will be. The report also suggests that the upper middle class is poised to become the main engine of consumer spending over the next decade. These affluent and ultra-wealthy consumers will spur rapid growth in luxury goods consumption.
They Are Getting Younger
In 2012, Generation 2 (G2) consumers accounted for 15 percent of urban consumption. By 2022, this number should more than double, to 35 percent. G2 is comprised of teenagers and people in their early 20s. They are confident, independent, adventurous, and they display such characteristics through their consumption habits. They are loyal to the brands they trust, prefer niche over mass brands, and are prone to regard expensive products as intrinsically better than less expensive ones.
They Are Moving West (and North)
In 2002, 40 percent of China’s middle class lived in the four tier-one cities: Beijing, Shanghai, Guangzhou, and Shenzhen. In 2022, this share will probably fall to about 16 percent because middle class growth rates will be far greater in the smaller cities of the north and the west. Tier-three cities’ share of middle class will reach about 31 percent, and even tier-four cities should get about 8 percent of the middle class wealth.
The evolution of the middle class means that sophisticated and seasoned shoppers, those able and willing to pay a premium for quality and to consider discretionary goods and not just basic necessities – will soon emerge as the dominant force. They will create new market opportunities, as well as challenges, for both domestic and international companies. The winners will be those that can adapt to China’s new constellation of rising incomes, shifting urban landscapes, and generational change.
photo credit: patrick gaudin