How young, upwardly mobile consumers are shaping China
Kevin Martin says a new wave of young, status-conscious middle class with a global mindset is driving China towards a consumer society, offering abundant opportunities for business
China's economy, boosted by a wave of growing middle-class wealth, is undergoing a significant shift in consumption, driven by a new generation of young, prosperous and independent consumers. The country's huge population and strong economic growth will make it the world's powerhouse of middle-class consumerism over the next two decades.
Today, China's economy is still heavily dependent on investment for growth: consumption only accounted for 50 per cent of gross domestic product last year, significantly less than the US, at more than 80 per cent, and even India, which was over 70 per cent.
The eastern region is home to the most affluent consumers, particularly the tier-one cities of Beijing, Shanghai, Guangzhou and Shenzhen. The region's tertiary sectors have the highest share of GDP of the 31 provinces and municipalities, mostly consisting of retail consumption, finance and IT services. It has the highest per capita retail consumption in China since it has the country's highest average wages as well as robust spending by tourists. Guangzhou has become the only city where retail consumption has contributed more to GDP than fixed-asset investment for the past 12 years.
The eastern region's position won't change, but the geographic centre of China's middle class is also shifting because less developed inland provinces have grown faster than rich coastal regions since 2007 and now account for 49 per cent of total GDP. Middle-class growth rates will be much higher in smaller cities in the north and west, and much of the rest of the country is expected to follow.
The government is now encouraging more people to spend. As a result, consumption in China will account for 60 per cent of GDP by 2020, according to a report by the International Data Corporation. That's the equivalent of adding just under US$1 trillion of consumer spending even at today's levels.
A massive push to urbanise will propel tens of millions of people and billions of yuan into the consumption equation. Spending by urban Chinese households is set to increase from 10 trillion yuan (HK$12.49 trillion) in 2012 to nearly 27 trillion yuan in 2022, according to McKinsey.