To understand China’s retail consumption boom is to meet China’s new middle class

It is a truth universally acknowledged that an affluent middle class in China has long been a holy grail of global capitalism. Dreams of a vast pool of willing consumers keen to buy Western goods are as old as notions of China itself in the West. It is a shibboleth of modern China that has refused to leave the dreams of Western CEOs and in the first decade of the 21st Century the concept of a vast, largely untapped Chinese retail market with an expanding goods-hungry middle class eager to snap up brands and products has remained as strong as ever.

Even as analysts and bankers worried nervously about the future of China’s export economy during the flurry of product recalls in 2007, pondered enquiringly the balance sheets of China’s banks, delved into the vagaries of rising inflation rates, looked for property bubbles and often tore their hair out over profitability of foreign operations and rampant overcapacity, the notion of a consumption boom in China remained a constant. The most bullish investment bankers stated their belief that the Chinese shopper would displace the American consumer as the engine of global growth by 2015 – perhaps a little rashly!

Since 2007 China has clearly become the world’s most compelling consumption story. As most of the world pitched into recession, China, despite being heavily dependent on export orders and inward investment, managed to remain largely immune from the world economic downturn thanks to a growing domestic market, large foreign exchange earnings that allowed for a substantial domestic stimulus package (US$586bn in 2008-09) and a protected currency and banking system. With little to no consumer credit overhang, shoppers, largely in work and with wages still rising, continued to spend.

More recently still, the Chinese consumer’s global spending power has become the stuff of new legend. Everyone from the luxury brands of the Avenue des Champs-Élysées, the Oxford Street Traders Association, the combined tourism authorities of Europe, Asia and Australia as well as retailers wherever Chinese tourists have appeared, have hailed them as their saviours. Chinese travelling overseas to spend and “arbitrage” purchases (particularly on items that attract high taxes at home such as luxury goods) has become a new theme of global retail and consumption.

And so the relentless march of the Chinese retail sales growth statistics continues – up, up and away… urban household consumption rose 12.3% YoY in 1Q12, while rural household cash consumption expenditure rose 17.6%. During the period from 2005 to 2010, retail sales increased at an average annual rate of 17.6%. This strong spending trend is also visible when in specific categories of goods. Computer sales, for example, rose 15% YoY last year and by a 15% compound annual growth rate (cagr) during 2007-11, according to data from Mintel-Access Asia. Fast -food sales rose 19% last year (13% cagr), while sales of white goods rose 9% (11% cagr) and cosmetics increased by 10% (9% cagr). China is the world’s fastest growing market for everything from carbonated soft drinks (14% last year) to SUVs (100%).

In the main, the engine driver of much of this shopping till dropping is the much-hyped “emergent Chinese middle class” – a term much bandied about these days both in China and in the PowerPoint presentations of Western soap sellers and fund managers.


Mintel defines the Chinese middle class as those people who are urban, invariably white collar workers and have a household income of between approximately US$9,000-US$30,000. Right now that gives us about 30 million households in China falling into the middle class – that’s approximately 13.5% of all urban households in China. Given that a household (thanks to the one-child policy) is typically mum, dad and a Little Emperor, that makes the middle class roughly 100 million people (more details below). Above that there are higher earners – Golden Collars – adding a few million more and below that those now considered xiaokang (or “comfortable”) who hope to move up into the middle class. With current wage growth, urbanisation and inflation of living costs, we’d expect the number of middle class households to comfortably break the 35 million mark by 2015 – making approximately 15% of urban Chinese households middle class.

Consumer research survey – definition

Too often conclusions about China’s emerging middle class are arrived at after examining survey data that includes a broad range of Chinese consumers across the country. This can lead to distortions. We are not asking the opinions of those who seek or hope to become middle class but those that have entered that consumer group. Therefore, Mintel’s 2012 survey of the middle class sought to drill down to find only those respondents who undoubtedly fell with the categorisation of middle class:

  • Minimum Personal income: RMB 7,000 per month in tier 1 cities; Minimum RMB 5,000 per month in tier 2 cities;

  • Minimum Family income: RMB15,000 per month in tier 1 cities; Minimum RMB10,000 per month in tier 2 cities;

  • Profession: white collar office workers in either state or private business, self-employed or SME business owners;

  • Education: college level or above – degree or higher only;

  • Assets: property owners (must own property or be paying mortgage on a property;

  • Car ownership: must own a car.

To ensure that we dealt with those middle class Chinese who were part of sizeable middle income communities and so could display shared patterns of consumption rather than being the exception within their immediate community, we only surveyed consumers in Shanghai, Beijing, Guangzhou, Chengdu and Nanjing. So, for instance, cities such as Xian or Hefei were excluded as, although there are middle income consumers in these cities, they do not have the number or spread of retailers, brands and services to compare with those cities chosen as yet. We have also excluded cities where many middle income people live, such as Shenzhen and Dongguan, on the ground that they are majority transient/migratory manufacturing cities and so skew survey results and do not really represent a settled middle class community.

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