below the surface the middle class consumer in China is rising.
Consulting firm McKinsey has identified a new demographic category, the “mainstream consumer”, which is set to drive growth in Chinese consumption spending over the next decade. Mainstream consumers have household incomes of $16,000 to $34,000 per year. They can afford discretionary purchases like branded clothing, cars, entertainment, holidays and shiny tech gadgets. Importantly they like to spend and have the capacity to do so. Mainstream consumers’ incomes are well clear of the basic cost of living and they have headroom to increase the use of credit. Consider that China’s wealthier consumers are the least leveraged in the world with average household debt just half of their incomes – in the US the ratio is more like one-to-one and Australia is heading towards two-to-one. But that’s not all.
Possibly the most impressive feature of the mainstream consumer group is its projected size. In 2010, mainstream consumers represented just 6 per cent of Chinese households. As disposable incomes continue to climb, this demographic class is expected to account for more than half of the households in China by 2020 – 167 million households! Number not big enough? Try 400 million consumers! That’s a compound average growth rate of 27 per cent over the course of a decade!
Certainly there are Australian businesses which will be well placed to capture some of this stunning growth.
Chris Demasi is a Senior Analyst with Montgomery Investment Management. To invest with Montgomery
