I arrived in Chongqing in the late afternoon of May 12th, without knowing about the devastating earthquake in Wenchuan, which is about 200 miles northwest of Chongqing. The taxi driver told me that even people in Beijing and Shanghai felt the quake. I knew the situation was pretty severe.
Since my last post about the definition of the Chinese middle class was considered “all too simple,” I dug out a comprehensive study: Emergence of the Chinese middle class and its implications. It’s a well-researched and well-documented research paper by He Li. The paper approaches the definition of the Chinese middle class from different angles such as lifestyle, income classification, occupation, and self-perception, and here is what it says:
Economists and sociologists have defined what they believe will compose the Chinese “middle class” of the future. They suggest that five categories of people will represent the middle class: scientific development entrepreneurs, Chinese managerial staff working in foreign firms in China, middle level managerial staff in state-owned financial intuitions, professional technicians in various fields, especially in intermediary firms, and some self-employed private entrepreneurs. Continue reading
People often ask me about the definition of the Chinese middle class. To me, it’s simple: the middle class are people who are not poor or rich, who have disposable incomes to consume, and who can follow their own dreams and pursue their own futures.
Yet there are many debates about the Chinese middle class. Some said China has only the new rich and the very poor; others argued that the middle class is an American concept and it doesn’t apply to China.
To make things simple, here is a definition from China’s National Bureau of Statistics: the households with an annual income ranging from 60,000 yuan ($7,250) to 500,000 yuan ($62,500) should be categorized as middle class. Continue reading
When I arrived at Orrick, Herrington & Sutcliffe LLP in Menlo Park yesterday, the presentation had already started. Jane Jie Sun, the CFO of Ctrip – the Expedia equivalent in China, was giving an enthusiastic talk about the company’s success. The room was full of aspiring entrepreneurs, mostly Chinese, who are trying to catch a slice of China’s economic boom, or at minimum, to admire what others have achieved.
This is one of the events put on by HYSTA – an entrepreneurial association in Silicon Valley. Standing in the audience, I couldn’t help to be impressed. Just look at the following facts:
– China’s travel industry is growing double digits every year and there is no sign of slowing down due to the emergence of the middle class.
– Ctrip aggregated more than 80 % of a fragmented market, which was typically characterized by mom-and-pop hotels, and handles a daily volume equal to the volume one travel agent does in a year.
– The company’s revenue is growing at 50 % year to year, with a gross margin as high as 80 percent (whew, where on earth can you find a business like that?!).
Although Ctrip is a copycat of Expedia, it successfully adapted to China’s situation and provides the services that are “China unique.” For example, we already know about the call-center and free ticket delivery, but its “express service” is quite remarkable. In Beijing and Shanghai, because traffic is so bad and people cannot predict how soon they will get to the airport, Ctrip invented a service that allows people to call while riding their taxis to the airport, and issues the air ticket including boarding pass within one hour. Wall Street analysts said Ctrip is the only company in the world that is doing this.
Other things I have learned are: since 2006, GDP growth in the second-tier cities in China has surpassed that of first-tier cities. Recently, China relaxed visa restrictions for people to travel to the U.S. as tourists. It is predicted that by 2020, China will be the largest outbound travel country in the world. A minor point, it will certainly help the huge trade deficit between the United States and China.
A friend of mine told me that her sister, who works in IBM Beijing, travels every year, and each year to a new country. For the young Chinese middle class, travel to see the world is an essential component of their lives. Some consider it an important achievement in their lifetime. We will see the Chinese are coming.
On my way back from a family event in Chicago on January 2nd, I was drawn to the magazine rack in a convenient store in O’Hara airport. Among the stacked magazines, the following cover stories caught my attention:
What’s Next: China (Newsweek)
Can the world survive China’s rush to emulate the American way of life?(Mother Jones)
The Newsweek article is particularly interesting, as it provides a balanced view on China (although some insecurity and hostility are still inevitable). Here are some startling statistics cited by Fareed Zakaria for what’s happened to China in 2007: Continue reading
When I traveled abroad ten or fifteen years ago, I hardly met any Chinese who were traveling as a tourist. Wherever I went, people would point to me and say: “Japanese! Japanese!”
Things are very different now. I have met many Chinese tourists in
Another interesting thing is that Chinese cars are becoming more and more popular in
We visited the famous Khan al Kahlili in
In addition to all the merchandises made in
A recent McKinsey report “How half the world shops: Apparel in Brazil, China, and India” reveals some interesting patterns of consumer spending in these countries. Two things stand out for me on the Chinese consumers. I thought I would comment briefly here as the Chinese consumers are related to my upcoming book on the Chinese middle class:
First, the Chinese mass market consumers (defined as annual household income from $3,000 to $12,000) have relatively small, undifferentiated wardrobes – 40 percent of the Chinese women reportedly wear similar clothing at work, formal social occasions, and dates with friends or family.
I did notice, even in Shanghai, people are less sensitive as to what to wear for different occasions. For example, I met a girl friend, who was wearing a beautiful dress, for coffee on a Saturday afternoon. She used to be a marketing professional in a multinational and is now running her own PR firm. But the next day when I met her again in a totally different situation, I was surprised to see that she was still wearing the exact same dress as she wore the day before. However, as China continues opening up to the world, I would expect people will become more sophisticated in this area.
Another thing is that China’s urban youth (18 to 25 years old) is dramatically different from other consumer segments (see my previous post on China’s cyber-savvy and pragmatic youth). They favor international brands and are much more open to try on foreign products compared with the youth in other countries. This segment currently comprises about 15 million people.
When I visited the Plaza 66 – the luxury mall in Shanghai, I was perplexed to see that most consumers in the mall were young people in their early twenties. I really wondered how on earth they could afford to buy Fendis and Luis Vuittons and where they got the money. My friend Shaun Rein, who studies the youth culture in China, explained: “It was the secretaries who are making 3,000 yuan a month who buy these luxury goods.” Well, if so, it’s hard to imagine this kind of consumption will sustain.
According to a recent The Economist article, this year, for the first time,
When I was traveling in
Interestingly enough, as the article indicates, “
Here is another picture of a Chinese middle class family:
The article also discusses the other myths about
This is a photo of the neighborhood of my parents’ home. Five years ago, it was packed with bicycles. But now, it’s parked with cars.
The article goes on to say that
Someone forwarded me an article “China’s Illusory Middle Class Market” by BusinessWeek a while ago, questioning whether there is middle class in China and if it changes anything at all.
I have just returned from China, interviewing people for my upcoming book on the emerging middle class in China. Clearly, no doubt that there is a growing middle class in China, mostly in coastal urban areas at this time. I have talked to many people – almost all of them own homes, and a lot of them have cars.
My current experience tells me that the Goldman Sachs report that the Chinese middle class will reach 650 million by 2015 is not too optimistic. At least I know the statement cited in the article that “many Chinese may purchase virtually nothing else for years before buying a car” is not true.
In reality, a lot of wealth was created in individual hands in just these few years. I visited IKEA and local department stores – they are literally fully fully packed! My sister bought two pairs of shoes while visiting a department store with me, and my mother said she just bought four pairs of shoes a few weeks ago!
I would say, taking into consideration purchasing power parity, the middle class people I met there have more or less the same level of affluence of average people here in the Bay Area.
Effective today, Across the Pacific is changed to The Chinese Dream – a blog on the emerging middle class in China. It strives to be a one-stop shop for all the resources and discussions about the Chinese middle class. Your contributions are welcome!