Skip to main content
Part of complete coverage on

Will Chinese consumers lead the world?

By Kevin Voigt, CNN
November 15, 2012 -- Updated 1406 GMT (2206 HKT)
Chinese consumers are poised to overtake Americans this year as the biggest buyers of luxury goods in the world.
Chinese consumers are poised to overtake Americans this year as the biggest buyers of luxury goods in the world.
STORY HIGHLIGHTS
  • China's growing middle class is expected to grow from 350 million to 600 million by 2020
  • Beijing's new leaders trying to steer economy toward domestic spending rather than exports and investment
  • Concerns remain over wealth disparity and lack of social safety net in China
  • Foreign companies say it's increasingly more difficult to compete in the domestic market

Hong Kong (CNN) -- When Shaun Rein drives to Shanghai's Pudong International Airport, about 10 minutes outside the airfield, he begins to notice a line of cars -- including Rolls Royces and Bentleys -- parked along the side of the highway.

"Why? It's because these people, who can spend a million dollars on a car, don't want to spend $2 on parking at the garage," said Rein, managing director at China Market Research Group.

For Chinese leaders, the nation's newfound wealth represents a bumpy road as they try to steer the economy on a new path. The ruling Communist Party (CCP) continues meetings this week for the 18th Party Congress, where it is expected to select Xi Jinping and Li Keqiang to become the president and premier, respectively, of China for the next decade.

Hu warns of corruption as congress begins

One of the great challenges the new leadership faces is to move the economy -- currently driven by exports and investment -- toward a more sustainable course led by domestic consumer spending. While domestic consumption is rising, it still makes up just over one-third of the China's total economy. American consumers, by comparison, power more than two-thirds of the U.S. economy.

China youth have savings rate near zero
China's migrants struggle
More reforms in China's future?
Challenges for China's new leaders

Much has been made of China's growing group of super rich which has spurred record sales for luxury goods makers such as Chanel, Louis Vuitton and Prada. The nation has an estimated one million people with a net worth of $1 million or more, and that is expected to grow 2.5 times in the next three years, Rein said.

But much of the hope of the rising domestic spending rests with China's growing middle class. There are an estimated 350 million people in China's middle class, which are households that earn between $6,000 and $15,000, Rein said. A government think tank predicted last week that by 2020 there will be 600 million Chinese earning middle-class incomes.

"But they are not really middle class in the American sense. In the U.S., you're born a blue collar worker, your parents were blue collar, your grandparents -- and you're proud of that, you have that identity. And you like to shop at Macy's on special occasions," Rein said.

"In China, you don't have that -- that doesn't really exist. Everyone here says they're going to be rich," he added.

China business: 'Mao is not coming back'

That growth represents eye-popping opportunities for foreign multinationals and domestic companies. Chinese consumers prefer overseas brands for consumer electronics yet favor domestic companies for personal care or household items, according to a recent report by McKinsey & Company. And foreign companies that got into the market early -- such as General Motors -- are now raking in record profits.

On China: Air times
'Chinese Consumerism'

Nov. 21,1830 HKT (0530 ET/1030 GMT)
Nov. 24, 1330 HKT (0030 ET/0530 GMT)
Nov. 25, 2130 HKT (0830 ET/1330 GMT)
Dec. 1, 2130 HKT (0830 ET/1330 GMT)
Dec. 2, 1330 HKT (0030 ET/0530 GMT)

But as outgoing President Hu Jintao noted last week, concerns remain. He set an ambitious target for 2020 to double per capita income in China from 2010 levels for both rural and urban dwellers to address the rising wealth disparity. "Unbalanced, uncoordinated and unsustainable development remains a big problem," Hu said in his speech at the Party congress.

"I think what's more alarming or more worrisome is how big is it going to get? Will it continue to grow and drive economic growth not only in China but for the world? Or will it stagnate under a mountain of new debt -- debt from expensive housing to the cost of educating your kids to health care costs?" said Karl Gerth, author of "As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything."

"These are all things that the government is trying to address by reinstituting some semblance of a social safety net, so instead of saving 40 or 50% of their disposable incomes, people can start to spend it," adds Gerth, who teaches at Merton College of the University of Oxford.

Photos: China's top leaders meet

For foreign companies, there are mounting worries of roadblocks from Beijing to prevent access to the growing Chinese domestic market. Last summer, a report from the European Union Chamber of Commerce showed that more than 40% of members said they think government policies for multinational companies are less fair than two years ago, and 22% say they may move investments out of the country as a result.

As Time's Michael Shuman recently wrote, a new Chinese Great Wall -- constructed of regulations and restrictions -- are making it harder for foreign companies to compete with domestic players in the Chinese consumer market. "Things that were easy are less easy," Michael Dunne, president of the Hong Kong-based auto consultancy Dunne & Co., told Time, adding that carmakers "have to work harder to get what they want. Free access is not part of the equation."

Still, more cash is trickling down to Chinese laborers. More than half of the country's growth last year "has come from domestic consumption, and it's really because the government is pushing for more money to go into the pocket of everyday Chinese -- 21 of China's 31 provinces increased the minimum wage by 22%," Rein said.

"So what you're seeing is Chinese are getting wealthier, they're starting to spend more," he said. "That's why you saw retail sales growth of 14.2% last month."

Complete coverage: China's leadership change

CNN's Kristie Lu Stout contributed to this report

ADVERTISEMENT
Part of complete coverage on
October 29, 2014 -- Updated 0518 GMT (1318 HKT)
A top retired general has confessed to taking bribes, becoming the highest-profile figure in China's military to be caught up in President Xi Jinping's war on corruption.
October 27, 2014 -- Updated 0507 GMT (1307 HKT)
A group in China escapes from a stuck elevator thanks to one man and his trusty hammer. CNN's Kristie Lu Stout reports.
October 23, 2014 -- Updated 1352 GMT (2152 HKT)
Facebook's founder says he taught himself Mandarin and tested his skills with students in China.
October 24, 2014 -- Updated 0133 GMT (0933 HKT)
China launched an experimental spacecraft that is scheduled to orbit the moon before returning to Earth.
October 28, 2014 -- Updated 1619 GMT (0019 HKT)
Full marks for ingenuity: This was a truly high-tech scam.
October 21, 2014 -- Updated 0526 GMT (1326 HKT)
The rationale behind Confucius Institutes -- an international chain of academic centers run by an arm of the Chinese government -- is understandable.
October 24, 2014 -- Updated 1511 GMT (2311 HKT)
Smooth jazz saxophonist Kenny G wants everyone to know that he's not a foreign agitator trying to defy the Chinese Communist Party.
October 17, 2014 -- Updated 1113 GMT (1913 HKT)
A smuggler in Dandong, a Chinese border town near North Korea, tells CNN about the underground trade with North Korean soldiers
October 28, 2014 -- Updated 0511 GMT (1311 HKT)
Yenn Wong got quite a surprise one morning earlier this month when she found out an exact copy of her Hong Kong restaurant had opened in China.
October 15, 2014 -- Updated 0315 GMT (1115 HKT)
When I first came across a "virtual lover" service on e-commerce site Taobao, China's version of Amazon, I thought it was hype.
October 14, 2014 -- Updated 1315 GMT (2115 HKT)
Each year Yi Jiefeng does what she can to stop China turning into a desert.
October 13, 2014 -- Updated 1454 GMT (2254 HKT)
As its relationship with the West worsen, Russia is pivoting east in an attempt to secure business with China.
October 8, 2014 -- Updated 0229 GMT (1029 HKT)
Aspiring Chinese comics performing in Shanghai's underground comedy scene hope to bring stand-up to the masses.
September 30, 2014 -- Updated 1654 GMT (0054 HKT)
Liu Wen is one of the world's highest-paid models and the first Chinese face to crack the top five in Forbes' annual list of top earners.
October 3, 2014 -- Updated 1144 GMT (1944 HKT)
Cunning wolf? Working class hero? Or bland Beijing loyalist? C.Y. Leung was a relative unknown when he came to power in 2012.
October 2, 2014 -- Updated 1125 GMT (1925 HKT)
 A man uses his smartphone on July 16, 2014 in Tokyo, Japan. Only 53.5% of Japanese owned smartphones in March, according to a white paper released by the Ministry of Communications on July 15, 2014. The survey of a thousand participants each from Japan, the U.S., Britain, France, South Korea and Singapore, demonstrated that Japan had the fewest rate of the six; Singapore had the highest at 93.1%, followed by South Korea at 88.7%, UK at 80%, and France at 71.6%, and U.S. at 69.6% in the U.S. On the other hand, Japan had the highest percentage of regular mobile phone owners with 28.7%. (Photo by Atsushi Tomura/Getty Images)
App hopes to help those seeking a way out of China's overstrained public health system.
October 3, 2014 -- Updated 0020 GMT (0820 HKT)
Yards from pro-democracy protests, stands the Hong Kong garrison of the People's Liberation Army (PLA), China's armed forces.
ADVERTISEMENT