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MUSHROOMING CHINESE MIDDLE CLASS - SECTORS OPPORTUNITIES

​Post liberalization in 1978, the China’s economy has grown at a stupendous CAGR of 12.3%. The country’s rapid growth will transition it from middle income country bracket to high income bracket. The growth of Chinese economy will be led by the country’s burgeoning 108.8 million strong middle class, the world’s largest, which is growing at a staggering rate. Since 2000, China has added 43.3 million adults to its middle class.

By 2030, as per the Economist Intelligence Unit, middle class will constitute 75% of China population, with 20% belonging to upper middle class. The growth of Chinese middle class underlines the potential of Chinese consumers to take up the mantle from the US as “world consumer of last resort”.

The flourishing and prospering Chinese middle class, with its increasing wealth and disposable income, would change its spending patterns significantly as it acquires greater financial stability and security. Higher proportion of the family budget will be expended on the more ‘fun’ discretionary purchases and lesser on mundane necessities. We outlined sectors which will benefit the most from the consumption shift and are good long term investing bets.

• ​ Financial services: As income levels rise, demand for financial services will naturally increase. Workers begin to look for more sophisticated products to conserve their savings as funds for retirement and bequests become more of a priority. This will see savings rates falling from the very high levels seen today. Stock investments and insurance are expected to be major gainers from the fall in savings rate.
•  Healthcare: China’s healthcare sector continues to develop at a rapid rate. During 2011-20, Healthcare spending is projected to reach US$1tn in 2020 from US$357bn in 2011 at CAGR of ~7.0%. The primary growth driver is the demand for healthcare is rising income level and more extensive insurance coverage. Second leg of growth driver is the greying demographics profile, by 2050, 50-64 will be the largest age group, due to China’s one child policy.
• Housing and furniture: China is witnessing one of the most rapid rates of urbanization in global history. Accommodation tends to become more sophisticated as people migrate to cities, and more income is spent in furnishing and white goods.
• Media and entertainment: Approximately RMB800 mn flowed into the Media & Entertainment sector in 2014. Buoyed by the increasing propensity of the younger generation to spend on entertainment, the industry has seen explosive growth in recent years (CAGR of 17% during 2010-15) and has grown at a much faster pace than the overall economy.
• Recreation & culture: As per HSBC, China should see demand growth of 7.8% a year or more in this segment between now and 2050. A testament to it is Macau, which has overtaken Vegas as biggest gaming destination worldwide. Around two thirds of Macau’s gamers are from China. The rise of Macau is indicative of the changing spending habits.
• Restaurants and hotels: Eating out and other leisure activities will become much more common amongst Chinese consumers as their disposable income and living standards rise. As disposable incomes rise, the younger generation prefers celebrating holidays and personal milestones by going out to eat in restaurants or hotels.
• Tourism and Travel: China has been, and remains the fastest-growing tourism source market in the world. The growth in number of Chinese outbound tourists is primarily driven by upper-middle class. China is currently the world’s largest source of outbound travelers and accounts for 30% of the growth in international tourism.