Chinese Consumers Helped Pull American Companies through the Recession

A new breed of enthusiastic Chinese consumers helped to pull many U. S. companies through the global recession.

While older Chinese still save almost 50 percent of their incomes, younger generations are “shopaholics” and save next to zero. Salaries for young Chinese aged between 20 and 30 almost tripled in less than a decade. The number of credit cards exploded in China, from 13 million in 2005 to more than 115 million in 2009.

A typical young middle class Chinese drives a Buick, talks on an iPhone, eats in MacDonald’s, and wears Nikes.

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Chinese Consumers Have a New Wish List

When the Communists took over China in 1949, some of the most highly sought luxuries were a sewing machine, a wristwatch and a bicycle.

Now, 60 years later, urban Chinese people have a very different wish list, which includes big ticket items – cars, houses and traveling for vacation. Alison Klayman reports from Beijing, September 29, 2009.

Unlocking the power of Chinese consumers

An interview with Stephen Roach by Clay Chandler, the McKinsey publishing group’s Asia editor in Hong Kong.

In China’s rush to join the global economy, the country stoked exports and government-led investment but neglected to build social and economic institutions needed to encourage consumers at home. Stephen Roach, Morgan Stanley Asia’s chairman, says its time for the world’s fastest-growing economy to find a “back-up plan.”

The Definition of the Chinese Middle Class

Defining the Chinese middle class can be confusing, depending on whom you talk to or which numbers you use.

The most common definition uses income as a measurement. According to McKinsey Global Institute, the Chinese middle class is those people whose annual incomes, in terms of purchasing power, range from $13,500 to $53,900. The Chinese Academy of Social Sciences (CASS) released a report in 2004 defining the Chinese middle class as families with assets valued from $18,100 to $36,200 (150,000 to 300,000 yuan). The official data from China’s National Bureau of Statistics categorize the Chinese middle class as households with an annual income ranging from $7,250 to $62,500 (60,000 to 500,000 yuan).

These numbers not only vary, they are also misleading. The cost of living in China is very different from that in the West. For example, a person making $1,000 a month can have a good standard of living in China, whereas he or she would need some kind of additional assistance in the United States. Even within China, living standards in the major cities, Beijing and Shanghai, are very different from those in smaller inland cities such as Hefei and Kaifeng. A rule of thumb is that middle class people have available one-third of their income for discretionary spending. This group of people has passed the threshold of survival and does not need to worry about the basics such as food and clothing, and it has some disposable income to buy discretionary goods and services.

In addition to income measurement, a research team led by Professor Zhou Xiaohong in Nanjing University further defined middle class occupations as professionals in management and technology, entrepreneurs, private business owners, and civil servants (meaning government officials). Unlike in the United States, middle class Chinese are concentrated in large cities. They are also relatively younger than middle class Westerners.

Since “middle class” is a Western concept, to a certain degree, it contains mythical elements for many Chinese. For example, they think middle class Westerners all own homes, drive cars, and travel for vacations. In addition, Chinese believe middle class people should have good manners and a tasteful lifestyle. They do not consider less-skilled professions such as waiting tables as middle class. In China, rural migrants who earn very low salaries mostly fill those jobs.

In The Chinese Dream, I use a combination of these definitions: urban professionals in foreign companies, private businesses, or state enterprises, government officials, and entrepreneurs, who have college degrees and earn an annual income from $10,000 to $60,000. Over three hundred million people, or about 25 percent of China’s population, met these criteria in 2010.

For the future growth of the Chinese middle class, please see here.