China’s growing upper middle class to drive consumption by 2020, research finds
Households with between US$24,000 and US$46,000 in disposable income to account for most of incremental growth in five years time, report by BCG and AliResearch says
The dramatic rise of China’s upper middle class and affluent families is expected to become a major driver for domestic consumption, which will grow fast despite the nation’s sluggish economy.
A report released by consulting firm BCG and AliResearch, the research arm of China’s largest e-commerce company Alibaba Group, said the combined number of upper-middle class households, whose annual disposable income ranges from US$24,000 to US$46,000, and affluent households, with disposable income over US$46,000, would double to 100 million by 2020.
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By then, they will account for 30 per cent of urban households, up from 17 per cent today and only 7 per cent five years ago.
“During the past few decades, China’s consumer economy has been powered by the ascent of hundreds of millions of people from poverty to an emerging middle class,” said Kuo Youchi, a principal with BCG Greater China who helped draft the report.
“But China is entering a new era. The real driver for the future will be upper-middle class and affluent shoppers.”
The report projects that affluent and upper-middle class consumers will account for 55 per cent of China’s urban consumption and 81 per cent of its incremental growth by 2020.
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Compared to tier-one cities like Beijing, Shanghai and Guangzhou, smaller mainland cities would see faster growth in the number of well-off shoppers. Half of the upper middle class and affluent households to emerge during the coming five years were likely to be in fourth-tier or even smaller cities, it said.
China’s economy has been undergoing a structural transformation while its gross domestic product growth has cooled in recent years. The government hopes domestic consumption willoffset the sluggish export and investment sectors.
The report is bullish about China’s consumption market, predicting it to grow 9 per cent annually to US$6.5 trillion by 2020, outpacing GDP growth which is expected to remain at around 6.5 per cent over the next five years.
In addition to an increase in wealthier consumers, another force to boost consumption is from the younger generation of shoppers who were born in 1980s and 1990s.
A separate BCG survey found that 42 per cent of Chinese aged 18 to 25 disagreed with the statement, “I feel I have enough things and feel less need to buy new ones”. That compared to 36 per cent in the US and European Union and 32 per cent in Japan.
Meanwhile, e-commerce, as a more important retail channel in China, will also help stimulate demand and is expected to account for 42 per cent of growth in private consumption.
Alibaba recently announced plans to buy the South China Morning Post and all other media assets owned by the SCMP Group.
