What to Expect from the Growing Chinese Middle Class

Since the 1990s, investment in higher education has become the norm in China, Chinese professionals are choosing new fields to pursue. The fastest growing fields are engineering, scientific research, and legal studies.[1] These new professionals are a part of the rapidly growing middle class, mostly found in the country’s coastal cities. According to McKinsey, the Chinese middle class is expected to grow more than 75% by 2022.[2] And their earnings are expected to be between ¥60,000 and ¥229,000 per year ($8,715-$33,266 USD).[3]

In 2016, Chinese consumers made 15.5% of their retail purchases online ¥5.16 trillion ($752 billion USD), far greater than $341.7 billion in US online sales.[4] China’s online spending in 2013 accounted for 35% of the world’s online spending and is expected surpass the rest of the worlds spending by 2018.[5] This trend is likely to continue as e-commerce giants like Alibaba continue to expand. The company recently eclipsed Bloomberg’s predicted net income estimate of ¥13.4 billion, instead net income rose 38% to ¥17.2 billion in 2016.[6]

The Chinese are spending a lot more on “aspirational luxury” goods.[7] An example of an “aspirational luxury” brand would be Coach. While these goods are higher-end and more expensive, they are not so expensive that they becomes unattainable, unlike a brand like Hermès. Differences within the middle class dictate what individuals are most likely to buy. Lower middle class consumers tend to buy flashier, higher-end products so they can display their increasing wealth and status. While upper middle class consumers focus more on quality rather than brand names and look for products that reflect their individual personalities more.[8] Sometimes the cost of these items can be a significant percentage (upwards of 25-30%) of an individual’s income. One way many consumers are recouping the costs of their luxury purchases is by reselling them later. Though this trend is growing in popularity, many consumers are nervous about purchasing second hand good for fears that the items are not authentic.[9]

In addition to growing luxury goods sales, many Chinese are choosing to spend their disposable income on travel. Though only 4% of the population has a passport, those individuals spend more than $200 billion dollars while traveling which is more than any other country.[10] As more and more people move from rural areas into the big cities, it will be interesting to see how the tastes of these consumers evolve.

 

Erin Trudeau
Tulane University School of Medicine
A.B. Freeman School of Business
2017 MD/MBA candidate

 

[1] Guo, Yingjie. “The Growth of Chinese Professionals: A New Middle Class in the Making.” Handbook on Class and Social Stratification in China. Cheltenham: Elgar, 2016. 300-20

[2] http://www.asia.udp.cl/Informes/2013/Mapping-Chinas-middle-class.pdf

[3] Conversion ratio of 6.88 USD to CNY

[4] https://www.digitalcommerce360.com/2017/02/06/online-shopping-china-grows-262-2016/

[5] https://www.bloomberg.com/news/articles/2016-03-09/here-s-what-china-s-middle-class-really-earn-and-spend

[6] http://adage.com/article/digital/alibaba-raises-forecast-chinese-consumers-continue-spend/307667/

[7] https://www.marketplace.org/2015/03/03/world/buying-power-chinese-middle-class

[8] https://www.chinabusinessreview.com/understanding-chinas-middle-class/

[9] Hruby, Denise. “China’s Middle Class Longs for Luxury — Secondhand.” WWD 13 Apr. 2017

[10] https://www.bloomberg.com/news/articles/2016-03-09/here-s-what-china-s-middle-class-really-earn-and-spend