Download Middle class driving China`s consumption growth

CHINA Ruby News
Ruby Zhu, China Economist of the Hong Kong General Chamber of Commerce. Email: [email protected]
Vol III, No.3 March 2004
Middle class driving China’s consumption growth
hina’s per capita GDP reached US$1,090
in 2003, breaking the US$1,000 barrier for
the first time and marking a new chapter
in China’s economic development. The
development signals a structural transformation
taking place in the country which will shift from
being an investment-driven economy into a
consumption-driven one.
Apart from mass consumption of daily
necessities and high-end products by rich
Chinese citizens, the swelling consumption
power of the middle class and the emerging
pattern that they are creating will play a key role
in shaping China’s consumer market.
It is difficult to precisely define China’s
middle class, because income gaps and living
standards differ considerably around the country.
According to BNP Paribas Peregrine’s research,
families with an annual income of around 75,000
yuan and assets worth over 300,000 yuan can be
classified as middle-class, which currently
represents 13.5 percent of the population.
Researchers at the Chinese Academy of Social
Sciences estimate that 48.5 percent of urban
residents hold 150,000 yuan to 300,000 yuan per
household, and 19 percent of the Chinese
population earn what is regarded as a
middle-class income. If China maintains its
growth momentum, the middle-income class will
account for 40 percent of the total population by
2020, and their contribution to China’s GDP
growth will rise from 58 percent in 2002 to 71
percent, which is close to the level in developed
countries.
The Central Government has been
encouraging consumption as part of its economic
policy for many years. In line with this, China has
just amended its constitution to protect holders of
private property. New personal income tax
regulations are also being formulated to further
promote consumption. Such policy initiatives,
coupled with growing use of credit and the
improving social security system will further
strengthen the middle class’ consumption power.
The spending habits of China’s middle class
are inline with those of developed countries.
These range from organic food, brand name
clothing, overseas travel, insurance and
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education to new electronic products, cars and
houses. The middle class’ consumption fad has
contributed to the prosperity of these industries,
which in turn drive China’s economic growth. The
growing ranks of the middle-class and rising
incomes will also boost sales of cars, housing
and other luxuries.
Demand for investment and financial
services are also expected to rise. In ten years’
time, the middle class will have developed their
preferences and tastes, which will include
investment and financial services. Hong Kong
can further leverage its strengths as Asia’s
financial centre and become the “Switzerland in
Asia.” Of course, this will require free exchange
of the renminbi and further liberalization of the
renminbi business in Hong Kong.
As the Chinese government is promoting
consumption and the middle class seem to be
listening, vast business opportunities in the
Mainland are appearing. Given Hong Kong’s rich
experience in the property, distribution and other
services sectors, local businesses have the
opportunity to make the most out of China’s
consumption trends.
Furthermore, CEPA
provides opportunities for Hong Kong firms to
develop these industries in the Mainland.
Further opening of service sectors such as
tourism, education and insurance will represent
enormous potential for Hong Kong companies,
and the liberalization of these sectors will be a
major item in the next-phase of CEPA
negotiations.
HKGCC recently sent a questionnaire to
members to collect their views about CEPA. It
is very likely that your opinions will be reflected in
the next-phase of CEPA and will help Hong Kong
businesses seize the opportunities created by
consumption trends of China’s middle-class. If
you have not received the questionnaire, please
contact Ms Chan at 2823 1207.