Present estimates of ?middle class? in China range from 100 million to 247 million, depending on how much income renders one ?middle class.? Assuming that an income of about$9000 is necessary to be considered middle class, China could have over 600 million middle class citizens by 2015. The China State Information Center, by contrast, considers those earning 50,000 yuan ($6,227) per year to be middle class ? and expects 25% of the populace to qualify by 2010. Of course, the level of affluence commanded by each tier depends on where the household is situated. For example, to be considered middle class in Shanghai, China's most expensive city, a family would need to have a higher income than if it were living inland in Chengdu or Chongqing. Roughly 13.5 percent of the China?s population now belongs to the middle class.
While China will still possess a lower average per capita income than the United States, it should be noted that disposable income stretches farther in China, on average, than it does in the United States or Europe. A significant portion of household budgets are expended on services, ranging from hair salons to meal at restaurants to travel. Services are usually labor-intensive tasks whose cost is attuned, in part, to the prevailing wage. In China, due to the vast supply of labor, wages are significantly lower than in the West. Thus, the cost of providing many services is lower and, as a result, prices for many services are lower. A visit to the manicurist might cost $1-2 in China, when a similar visit in the United States might cost $10 or more. Thus, smaller incomes in China can provide a standard of living equivalent to those with a far larger income in the West.
Estimates of the size and growth rate of China?s middle class vary. Roughly half of China's projected urban population will be middle class in 2025. Unlike the United States, where income typically peaks between the ages of 45 to 54, it is predicted that the wealthiest consumers in China will be between 25 to 44 years old because the younger generation will be more highly educated.
The meteoric rise in China?s middle class is tied to dramatic increases in its per capita income, which is growing at a nearly unprecedented rate. The first industrial revolution created a 250% increase in per capita income over a 100 year period. The second industrial revolution triggered 350% per capita income growth over 60 years. By comparison, China is on track to create a 700% growth in per capita income in just 20 years.
Chinese households currently save 25% of their post-tax income, according to the China Statistical Yearbook. A survey by McKinsey indicated that this high savings rate was driven, in part, by Chinese citizens? belief that they need to set aside funds for retirement and healthcare expenses. If these expenses do not rise as rapidly as income levels, then Chinese consumers may have a surplus of funds that they are willing to spend. And, if health care costs do rise, the Chinese healthcare sector may be an attractive investment.
The World Bank defines ?higher middle income? economies as those where per capita annual income exceeds $3000 to $4000. Once annual incomes cross this $3000 threshold, there tends to be an accelerated growth in that country?s middle class. This would result in a middle class six times higher than today, representing 28% of total Chinese population. It will not be until 2050 that China is predicted to reach a per capita net income of $30,000, the level of most Western countries today.
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