As China slowly transforms its economy from dependence on exports to one driven by consumers, the emphasis will shift to retail sales. Indeed, with nearly $9 trillion lost in Western stock and housing markets since 2008, the world urgently needs a new consumer. Marketers–will the Chinese middle class be the next battle ground for your products or services?
There are poor in China–and lots of them–as peasants from the countryside struggle with daily hardships and most live "hand to mouth". And for a country that once frowned on the accumulation of wealth, there are also individuals who are very well off. But a segment of consumers exists in China, just above the hefty niche of factory workers–a middle class–growing in sophistication and disposable income.
To be sure, this middle class is just a segment of Chinese consumers–estimated to be anywhere from 150-300 million, of a total 1.3 billion people. But these individuals are spending and could potentially be the growth engine that delivers the world from its economic doldrums.
To keep their economy humming at a 6-8% growth rate, China has unleashed a $586B stimulus package. A recent Wall Street Journal article cites the implications of this stimulus on China's economy:
"A torrent of bank lending, spurred by the government, is increasing investment in China. Consumers are out shopping in response to incentives such as lower mortgage rates and tax cuts on car purchases. Auto makers in particular are benefiting. Vehicle sales in China climbed 5% to a record 1.11 million units in March–a tentative turnaround from last autumn, when car sales slowed significantly."
It's important to realize that not all of the $586B will be put back into the hands of consumers. In fact, most of the monies will go towards needed infrastructure improvements and healthcare. But a significant portion of the stimulus is helping China's middle class spend more aggressively. "In China, people still have the money to buy a Mercedes", said Ulrich Walker, chairman and CEO of Daimler's northeast Asia operations. We expect a continued positive growth trend."
To be sure, China's definition of middle class isn't the same as in most Western societies. Affluent workers in China's middle class only earn up to $12,500 (USD) per year. Moreover, many middle class workers are still salting away a significant portion of their salary for housing, healthcare, and schooling–not exactly spending wildly on international brands.
However, as global marketers desperately seek buyers for their products and services, it might be worth a look at the rising incomes and spending power of China's emerging middle class.
Questions
1. The Chinese head of Nissan Motors says that China's market is currently the only growing market. Proctor and Gamble says sales in China have slowed, but not as much as other countries. Can affluent and middle class Chinese "save" the global economy?
2. Many multi-national retailers have made significant strides in the Chinese market. Are they placing safe or smart bets (both?) on a growing middle class?
3. Have you identified your growth engine for the next 5-7 years? What/where/who is it? Does China factor in your plans?
