Almost every week, another company makes a new investment predicated on Asia’s emerging middle classes: banks, retailers and consumer goods makers are all piling into the region. Are they in for a long wait?
Not according to the bullish forecasts. McKinsey expects China’s lower middle class to swell to 290m by 2011 and the upper middle class, defined as those earning an annual $4,000-$12,500, to rise to 520m by 2025. By that time, the consultancy estimates, India will have 583m paid-up members of the middle class. In less than two decades, the two countries together will have more than three times as many rabid consumers as the US has citizens. That adds up to a lot of pennies in the till: $1,660bn of disposable income in real terms in China alone.
There are several drawbacks to this – including the rather salient point that the low earnings threshold means estimates are probably overstated. Restricting the measurement to easily reached consumers, or those in the main cities, crunches the numbers lower still. Regardless of the size of the middle-class, or even their wallets, discretionary spending will remain a fraction of markets like the US. There is very little buying on credit. Thrifty Chinese save about a third of household earnings and will continue to do so as long as they are required to fund their own social welfare.
As Beijing-based Dragonomics Research & Advisory points out, by far the bulk of Chinese consumption is focused on the basics – as in much of emerging Asia. Richer consumers, meanwhile, can prove elusive creatures at home. Indonesian tycoons are as likely to buy apartments in Singapore, say, while rich Chinese are as happy buying designer goods in Hong Kong or Milan. Middle classes are a slippery group to define – particularly in emerging markets, when the income gap is widening.