“Cautious Consumers” or “Expanding Middle Class”?

Not too long ago, BusinessWeek ran a story “Cautious Consumers” citing a family in Beijing with combined take-home income less than $800 a month that “hardly ever go to restaurants, a movie outing is a rare treat, and they have no plans to trade in their bicycles for a motorcycle or car.” The article says most mainlanders “sock away tons of cash, close to 40% of their earnings every month” and only buy a product when it is heavily discounted.

This may be true for the older generation, since frugality is a tradition so deeply rooted in the Chinese culture. But if you look at the younger generation, their attitude may be very different. During the week-long holidays in May, sales of air conditioners, LCD TVs, clothing and jewelry escalated, as much as a 41% increase from last year.

According to official figures, retail sales in China grew at an annual rate of 15.5% in April, “beating forecasts and marking the fastest pace since 2006.” The expanding Chinese middle class is the major engine behind the growth in sales. Government initiatives to encourage spending by lowering taxes, especially in rural areas, have also fueled sales.

“The figures reflect a wider move by China to shift the focus of its economic growth – which has been taking place at breakneck speed – away from exports and towards domestic spending instead.” says BBC News.

Yet there is a debate on China’s illusory middle class market. No wonder China is difficult for foreigners to understand. It is a country full of contradictions and extremes.