China's New Middle Class Is Very Real

Someone recently forwarded me a BusinessWeek article entitled "China's Illusory Middle Class Market" from a few months ago, which questions whether there is middle class in China and if it changes anything at all.

I have just returned from China, interviewing people for my upcoming book on the emerging middle class in China. There's no doubt that there is a growing middle class in China, mostly in coastal urban areas at this time. I have talked to many people - almost all of them own homes, and a lot of them have cars.

This is a picture of the home of a typical middle class family in Hangzhou, a second tier city southwest of Shanghai.

My current experience tells me that the recent Goldman Sachs report that the Chinese middle class will reach 650 million by 2015 is not too optimistic. At the very least, I know the statement cited in the article that "many Chinese may purchase virtually nothing else for years before buying a car" is not true.

In reality, a lot of wealth was created in individual hands in just these last few years. I visited IKEA and local department stores – they are fully packed. My sister bought two pairs of shoes while visiting a department store with me, and my mother said she just bought four pairs of shoes a few weeks ago!

I would say, taking into consideration purchasing power parity, the middle class people I met there have more or less the same level of affluence of average people here in the Bay Area.

Comments

[huangjin:]

Is Hangzhou really a second tier city? Depending on what measures are used, the case could be made that it is second only to Shanghai.

2007 Oct 12 11:58 AM

[J.D:]

Sure there's a middle class in China, probably 70-100mm people with a family income of a lot less than what it costs to consume most imported goods and services. That's why Ikea pursued a low-price strategy (see WSJ). Apt pictured above isn't "middle class", probably top 5% or fewer. Unfortunately, you can't spend PPP dollars.

online.wsj.com/public/...

2007 Oct 12 12:09 PM

[Carl Zha:]

J.D

What is your source that indicate the apt pictured above is in top 5% or fewer? I was last in China in 2001 equivalent to eons ago in current China years. I would say the apt pictured above is typical "middle class" in an 2nd tier city (I visited Chengdu and Chongqing) even back then. My relatives lived in apt like those, let me tell you they are definitely not in the top 5%.

Although huangjin has a point about whether Hangzhou is 2nd tier city, In fact, I am not sure Chengdu and Chongqing shoud be consider 2nd tier any more.

2007 Oct 12 06:39 PM

[huangthomas:]

Judging by the size of the concrete column, I believe this is one of those expensive, spacious, high-rise condominium in one of the major city in China. I wonder how many American middle classes can afford to live in a condo like that. Wow, shall we all move to China? Unbelievable story!

2007 Oct 12 06:35 PM

[huangthomas:]

I believe this is one of those pre-Olympic propaganda waged by Chinese Communist Party. Remember they are still in power! Old habit die hard.

2007 Oct 12 06:57 PM

[J.D:]

Hao Han, your family could be luckier than you realize. Take a look at their salaries, assets, professions, and start crunching a few numbers. Big apartment in Hangzhou, a rich city with money to burn on funky lighting? Not average. Even car ownership is a bad indicator. What 20 million in the whole country (a hight estimate)? Right there you've got your top 5% households. All those black audis aren't middle class working stiffs.

2007 Oct 12 11:39 PM