A new, young middle class is emerging in China, and their buying power is dramatically shaping the country’s commerce.
Most members of this demographic are the only child in their families, and often also the children of only children. This so-called “4-2-1″ family dynamic means that the savings of two parents and four grandparents are passed on to one child. As a result, the new middle class are less sensitive to prices, eager to show their affluence, loyal to brands, and prefer to purchase niche products over mass-market ones.
This family model, along with increasing per capita household incomes, is changing the way that Chinese consumers view wealth. The consumer has not only his own quality of life to think about, but also his children’s education, and financial security in retirement. According to the South China Morning Post, “The prospective rising salaries that accompany well-educated graduates will reinforce this trend.”
Urbanization is also contributing to consumer wealth, and “will propel tens of millions of people and billions of yuan into the consumption equation.” According to McKinsey, spending by urban Chinese households is expected to rise from 10 trillion yuan (HK$12.49 trillion) in 2012 to almost 27 trillion yuan in 2022.
However, SCMP adds that “the ways the Chinese middle class have been maintaining their wealth so far is unsophisticated.” Property investment is common, and wealth management products are growing in popularity as a result.
Indeed, despite radical market shifts, the Chinese economy “is still heavily dependent on investment for growth,” with consumption only accounting for half of the country’s gross domestic product in 2013. But times are changing, and, according to a report by the International Data Corporation, consumption in China is expected to account for 60 percent of GDP by 2020.
The growing spending power of Chinese consumers is also driving an interest in luxury brand shopping. Western brands are booming in China, because they are “associated with a high quality of life and sophistication.” Consumer demand has in turn driven the country’s huge e-commerce market, now the biggest in the world, with spending forecast expected to reach US $540 billion in 2015.
The eastern region of China hosts the most affluent consumers, particularly in tier-one cities, but middle-class growth rates are also rising in smaller cities in the north and west.
Young consumers are also expected to continue to push international tourism. Outbound travel from China may reach 200 million by 2020, or three times the current rate of departure in the United States today.
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