China’s Middle Class Has Become a Major Pillar of Its Economy

The Chinese middle class, now estimated at more than half a billion strong, has become a key driver for the country’s economy.

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The newly released data indicates that China’s retail sales grew more than 11 percent in 2015, despite economic slowdown. Consumer spending was one of the brightest spots in the Chinese economy, which is now $10 trillion in size, and registered a 6.9 percent growth last year.

A Bloomberg article, “Beyond the Headlines, Five Things to Watch in China’s GDP Report,” wrote:

Rapid income growth over the last decade has made Chinese consumers an increasingly powerful force, snapping up Apple iPhones, Tiffany diamonds and Toyota sedans.

Urban household incomes increased more than 8 percent, the new data shows. China also added 13 million jobs last year, exceeding the government target of 10 million, thanks to the booming service sector.

The unemployment rate was at 5.2 percent, about the same as the United States.

While investment in fixed assets slowed, the residential housing market is rebounding. The data also shows that “home-price recovery spread to more cities in December, especially smaller ones.”

All these indicate that the Chinese middle class is still growing, and China is transitioning to a consumption- and service-oriented economy. In a meeting on Saturday, the Chinese Premier Li Keqiang said that services accounted for half the economy and consumption contributed nearly 60 percent of economic growth.

Some questioned the reliability of China’s official data, believing that actual growth was lower, at 4 to 6 percent. But a careful read of Chinese consumer data over the past year says otherwise.

For example, online sales increased 33 percent in the first 11 months of 2015. Last November, Alibaba’s Single Day Shopping Festival generated a record $14 billion sales within the first 24 hours. This dwarfed the U.S. Black Friday number, which was less than $5 billion in sales.

Chinese consumers accounted for “about one-third of the world’s purchases last year of leather handbags, high-end watches and other expensive indulgences,” estimated by industry experts.

Starbucks plans to open 500 stores in China every year for the next five years. Currently, Starbucks has 2,000 stores in 100 Chinese cities. Howard Schultz, Starbucks chief executive, expects China to be the company’s largest market.

While some argued that China’s 6.9 percent GDP growth was a sign of a “deepening slowdown,” Mr. Schultz disagreed. “We have confidence in the future of the Chinese economy, despite all the rhetoric, noise and issues,” Schultz said in an interview with Wall Street Journal. “People are looking for reasons not to believe. I’m on the ground and I see firsthand. I am bullish.”

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