As China looks to shift its export-dependent economy to a greater reliance on domestic consumption, one number is in its favor: 280 million.
That’s the total number of affluent consumers China is expected to have by 2020 – more than doubling the current total of 120 million — according to a new study by consultancy Boston Consulting Group.
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- A woman uses a mobile phone as she stands next to statues in a popular shopping district in Beijing on June 27, 2012.
BCG describes as affluent people with annual household disposable incomes of between $20,000 and $1 million. The upper affluent — those earning between $40,000 and $1 million per year — will account for 40% of the 280 million, the BCG study said. (BCG puts people whose families have disposal incomes over $1 million per year in a separate category, high net-worth individuals.)
China has been trying for years to get its people to spend more, in part to wean the world’s No. 2 economy off export-led growth at a time of falling consumption abroad. But regular Chinese workers, unsettled by the country’s meager health care and pension systems, remain reluctant to part with their money. That leaves the wealthy as the best hope for gains in domestic consumer spending in the short- and medium term.
The report, based on interviews with 3,000 affluent individuals, says most of China’s current affluent population are under 45 years old and arrived at their position after spending at least five years toiling away as members of the middle class. They have different spending habits than the middle class, putting more emphasis on “emotional satisfaction” and less on utility when deciding to make a purchase.
The affluent will propel 40% of China’s consumption growth and will comprise 35% of all consumer spending in 2020, up from 24% last year, according to BCG. Their spending will grow fivefold to $3.1 trillion in the next eight years.
Every business—from the usual luxury suspects down to the shampoo sellers and travel agents—will be looking to cash in. But it won’t be easy, the BCG study says, adding that wealth will be far more scattered around the country, with 75% of future affluent consumers coming from China’s smaller, lower-tier cities.
The country’s wealthy are also becoming more split, with the veterans no longer interested in flashy, logo-laden products and the newbies wanting all the glimmer, BCG says.
Further complicating the picture is the growth of a new generation who inherited their wealth, rather than accumulating it on their own. The silver spoon set will comprise 30% of the affluent in five years, up from its current 10%, the data said. These consumers are fickle, rejecting the products their parents use, wanting exclusive but unique products.
That leaves a major task-list for corporations. Businesses will need to rethink their strategy, outlining expansion, split marketing or product lines, an extreme understanding of the Web and social media and basically what it means to be hip in China, the BCG study said.
– Laurie Burkitt, with contributions from Lilian Lin
Report: China 'Affluent' Population to Hit 280 Million by 2020.