The rise of China’s middle class has given the nation the world’s largest consumer base. According to a 2018 report published by the McKinsey Global Institute (MGI), China’s middle class expanded by over 400 million people between 2000 and 2022. This is a stunning figure and has drastically changed the economic and social complexion of the nation.
What is more remarkable still is that this transformation happened quickly and has been nothing short of impressive. It is no secret that the Chinese economy has experienced rapid growth in the last three decades, leading to an increase in the nation’s wealth and spending power. As a result, the middle class in China has steadily grown, not only in size but also in purchasing capacity thanks to its increasing wages, disposable income, and access to credit.
This shift in demographics has also had a profound effect on the nation’s economic performance. China has become a major economic power on the world stage, largely due to its rapidly emerging middle class. In this article, we will discuss the rise of the Chinese middle class and the impact it has had on the economy.
Defining the Middle Class in China
The term “middle class” is widely used but not often clearly defined. For example, some people may define the middle class as those with a certain amount of money or education level. According to MGI, the middle class in China can be broadly categorized as those who have an annual household income between 60,000 and 229,000 RMB (around US$8,800 and US$33,000).
This puts the size of the Chinese middle class at over 400 million people, making it the largest such class in the world. This new middle class is also quite prosperous, with an average annual income of around US$17,200. It is also increasingly urban, with over 75% living in cities and urban areas.
The Impact of the Middle Class on the Economy
China’s rapidly growing middle class is having a significant impact on the nation’s economy. The impact can be seen in four broad areas: spending, savings, credit, and investments.
Spending:
The middle class in China has been a major contributor to the nation’s consumer spending. According to the MGI report, the middle class accounted for US$2.2 trillion in consumer spending in 2017, accounting for 38% of China’s total expenditure which was worth US$5.8 trillion.
The middle class also contributes to the nation’s spending in other ways. For instance, they are much more likely than lower-income households to invest in technology, invest in education, take vacations, dine out, and purchase luxury goods.
Savings:
China’s middle class is also having a positive impact on the nation’s savings rate. According to the MGI report, the savings rate of the middle class was 13.7% in 2017, with the average saving of a middle-class household being RMB36,900 (about US$5,500). This is significantly higher than the average saving of a lower-income household, which is only RMB9,900 (about US$1,400).
The high saving rate of middle-class households not only contributes to the nation’s overall savings but also increases their purchasing power. This has had a major impact on the economy, as it has allowed more households to access credit and make larger purchases.
Credit:
The rising number of middle-class households has also had a major impact on the nation’s credit market. According to the MGI report, the middle class has been a major contributor to the nation’s consumer credit, accounting for 42% of consumer credit in 2017.
The middle class is also more likely to use credit than lower-income households, making them a major driver of consumer spending and investment. Furthermore, their increased access to credit has allowed them to make larger purchases, such as cars and real estate.
Investments:
The rise of the middle class has also resulted in a shift in the way people are investing their money. The middle class is much more likely to invest in the stock market and funds than lower-income households, making them an important driver of the nation’s capital markets.
Furthermore, the middle class is also increasingly investing in technology and venture capital. This has had a positive impact on the economy, as it has encouraged new business formation and the creation of jobs.
The rise of the middle class in China has been nothing short of remarkable in the last three decades. The middle class now accounts for over 400 million people and contributes over US$2.2 trillion to the nation’s consumer spending. This is having a major impact on the nation’s economy, as the middle class is much more likely to save and invest than lower-income households.
It also has a positive impact on consumer credit and encourages new business formation, leading to job creation and increased economic growth. The rise of the Chinese middle class is thus an encouraging sign of the nation’s economic success in the years ahead.