China’s Super Affluent Class

In the 1840s an English writer famously observed that “If we could only persuade every person in China to lengthen his shirt tail by a foot, we could keep the mills of Lancashire working round the clock.”
  Turns out that a recent McKinsey study, as well as the IMF's World Economic Outlook indicates that the needs of the Chinese consumer to fit their own kit of shirts-and tails-will certainly drive their Chinese mills for well beyond the next generation as a result of the change in Chinese household wealth.

China Drives 25% of the World's Economic Growth

China's economy has soared and is expected to exceed an expected 11.2% per, which is light years ahead of the predicted 2% of the US economy according to the IMF. In a recent McKinsey report they think that more global companies will be focused on serving China’s growing affluent customers—all in China’s urban centers. I agree. Here’s a related fun fact: There are more mobile phones in Shanghai  than all of Australia.

According to the IMF, China will provide a quarter of the annual growth rate of the world's economy this year, while China, Russia and India together will account for more than half of the world's economic growth this year. Next year, China's growth rate is expected to slide slightly to a still strong 10.5%. China's economy is thus fueling a massive expansion of its middle class. These burgeoning Chinese urban middle class is not only redefining the Chinese market it is also redefining global markets.

China's Super Affluent

McKinsey defines the Chinese super affluent as people on an annual salary of more than US$50,000, a segment that is now estimated to cover as many as 2m Chinese but growing at an annual rate of about 15 per cent. Meanwhile, China’s overall bankable population is about 130m households, equivalent to 70 per cent of the country’s urban population.

China's Urban Consumers will define Global Affluence

Consumers in China 's urban-affluent segment earn more than 100,000 renminbi (about $12,500 US) a year and command 500 billion renminbi, nearly 10 percent of urban disposable income, despite accounting for just 1 percent of the total population according to McKinsey.
They voraciously consume globally branded luxury goods like Omega, Nokia, Audis, and Gulfstreams  (have you seen the size of Beijing’s new-est airport trade complex), allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them. And since this segment is currently concentrated in the biggest cities, it's easy to serve, both for companies now entering the Chinese market and for old hands seeking a steady revenue stream. Supply and they buy.

However, fixating on the urban-affluent consumer could mean that companies fail to capitalize on the dramatic changes that lie ahead as China's economic growth improves the livelihood of hundreds of millions of its citizens, posits the McKinsey study.
Over the next 20 years more people will migrate to China's cities for higher-paying jobs. These working consumers, once the country's poorest, will steadily climb the income ladder, creating a new and massive middle class. Meanwhile China’s rural west will no doubt crater, along with the populations of native peoples as a part of China’s demand for labor in these prospering cities.
The true historical lesson of China’s economic development is the success of market economics as a poverty reduction program.  No place in history has so many rural, economically challenged people been able to overcome poverty to become economic contributors.

'To be Rich is Glorious' - The world's Most Successful Poverty Program

The rising economy in China has lifted hundreds of millions of households out of poverty. Today 77 percent of urban Chinese households live on less than 25,000 renminbi a year; by 2025 that figure will drop to 10 percent says the study. By then, urban households in China will make up one of the largest consumer markets in the world, spending about 20 trillion renminbi annually. Since these estimates were calculated at today's tightly managed exchange rates, they may significantly underestimate China's future consumer purchasing power.

Spending Power in China : Share of Chinese Urban Households

                                                                                         1995           2005             2015    2025

Millions of Households                                                        102              191              280      373

Global Affluent                                                                    0.1%           0.1%            0.4%    3.3%

Mass Affluent                                                                      0.1%           0.5              5.6      7.7

Upper Middle Class                                                              1.3%            9.4             21.2     59.4

Lower Middle Class                                                              5.7%            12.6           49.7     19.8

Poor                                                                                  92.9%           77.3           23.2      9.7

Wealth Comes at What Price: Health

On the flip side, according to a survey of 183 middle-aged company owners in China, by the Ciming Health Physical Examination Co., showed they were suffering from disproportionate diets, smoking and a dearth of exercise. Perhaps the high-living, high-pressure lifestyles of China's industrial revolution are catching up with them. The checks of 123 men and 60 women from Beijing, Shanghai and Guangzhou showed all had at least one health problem. Each of the entrepreneurs surveyed owns assets worth more than 10 million yuan (US$1.31 million).

The survey, showed 41.5 percent suffered from high cholesterol, 21.8 percent from high blood pressure and 12.5 percent from hyperglycemia, or high blood sugar. The cholesterol count was 20 percentage points above the national average, while those for hyperglycemia and high blood pressure were each ten percent above the national average.

Cimin chief executive Dr Han Xiaohong said, "the new rich is not as heathly as an average person." "High pressure from their work and irregular lifestyles are the main causes," she said.

More than 30 percent of the interviewed said they seldom exercise and 67 percent said they are sacrificing health for money.
Han said that more people were sacrificing their health for the success of their career or making more money at the expense of their health. "The survey was aimed at reminding the public that health is the biggest asset and could not be bought with money. The affluent, to some degree, were regarded as successful, but the survey showed they are not so successful in terms of health", Han said.

There's a price to pay for everything.

Source: McKinsey Global Institute, 2006; IMF World Economic Outlook 2007; Xinhua News Agency