Private consumption, pillar of the economy ( 340,09 KB )

 

  When we think about an archetypal world consumer, we most probably associate him or her with the middle class of advanced countries. This group's lifestyle includes aspects such as the benefits of housing, access to educational services and health, the chance to take advantage of retirement, a life that combines moments of leisure (including holiday periods) with others of work... All this seems the exclusive right of the most developed countries in the world. However, this stereotype, which was true just a few decades ago, might be taking giant steps towards becoming obsolete, if it's not practically obsolete already. Can we really say that consumers are still almost entirely located in Europe, North America, Japan and Oceania?

  In order to answer this question, first we have to think about what we mean by middle class. In public debate, and as perceived by citizens, the middle class is difficult to define precisely. However, academic literature has opted for different focuses, one of the most widely accepted being the one that associates the middle class lifestyle (demonstrated through their consumption preferences) with certain levels of income. A recent study by the Organization for Economic Cooperation and Development (OECD) chooses to define middle class as the one made up of those households where daily consumption is at least 10 US dollars per person (in purchasing power parity).(1) In short, in a household with four members we would be talking about a consumption threshold of around 15,000 dollars a year.

  So, how many people are in the middle class thus defined and where are they located geographically? According to OECD data, in 2009 the middle class was made up of 1,845 million people. Although most are still located in advanced countries, as 54% of them live in North America and Europe, it's still surprising to see that 46% of the middle class is located in areas where it used to be practically non-existent. This figure is more than significant, over 840 million people, and already accounts for a large proportion of the consumption carried out by the world's middle class, in the order of 35% of the total.

  Given that the appearance of this new middle class has been due to strong growth in the emerging economies over the last two decades, we should ask ourselves how the world's middle class might evolve if the growth forecasts for these countries actually come about. Always according to OECD projections, in 2020 the global consumption scenario will be substantially different from now. At the beginning of the next decade, two thirds of the middle classes will be living in areas other than North America or Europe. These 2,200 million people will be responsible for 54% of the total consumption by the world's middle class. In short, this is a hugely significant change in scenario as, for the first time since the industrial revolution, most of the world's consumption will have shifted from west to east, both in terms of the number of consumers and in spending capacity.

  (1) Kharas, H. (2010), 'The Emerging Middle Class in Developing Countries', Working Paper 285, OECD Development Centre, Paris.

  If the consumer of the future will largely be from the middle classes living in the emerging economies, one way of visualising this situation is by examining this group in China, the leading country in this worldwide consumption shift. According to the aforementioned OECD criteria, the Chinese middle class is already numerically important: it has reached 160 million people, becoming the second largest, at a national level, behind that of the United States. So what are these Chinese consumers like? First of all, fundamentally urban, as although half the households in China live in cities and other half in rural areas, almost all the middle class live in the country's urban areas. However, in spite of their urban habitat, we must move away from our perception of the lifestyle that characterizes the prosperous middle classes in advanced countries. A middle class Chinese home concentrates practically one third of its consumption on food, a much higher proportion than what is usual in the West. The other large items of expenditure are transport (17% of total household consumption), leisure, culture and education (13%), clothes (10%) and housing (9%).(2) Given that more than 50% of the consumption is focused on essential needs (food, clothes and housing), we can see that the Chinese middle class is different from its counterparts in advanced countries.

  (2) These data and those of the number of consumer durables in the next paragraph are from the China Statistical Yearbook, 2010.

  This conclusion remains if we analyze which consumer durables can be found in middle class Chinese households, a quick and intuitive way of comparing disparate situations. In China, the typical middle class household is equipped with the usual mod cons for domestic life (a fridge and washing machine are present in every home). The advantages of information technology are also present, as almost all families have a computer. Although the penetration of mobile phones is lower than the usual figure for our homes, with two mobile phones for the three members in an average urban household, the situation looks comparable. Far from our standards, however, fewer than a third of these households have a car. Television is also practically universal, although in leisure it's surprising to see that 5% of middle class households have a piano (and an additional 2% have other instruments).

  We cannot dismiss this last piece of data as merely anecdotal as it points to a second big difference between the Chinese and our middle classes. Chinese consumers do not stand out purely for what they buy but also for why and how they buy. Although these aspects are more difficult to ascertain than the ones mentioned previously, marketing studies tend to conclude that a significant part of the consumption of the Chinese middle classes is aspirational in nature: it's the way in which the palpable desire is materialized to access a level and way of life that had traditionally been barred to them. This new status takes shape via consumer goods and leisure and cultural activities, such as having a piano.

  Together with this desire to project a status and social position, Chinese consumers also stand out because they consider the very act of buying as central to their lifestyle. In a recent study, no fewer than 41% of those interviewed stated that going shopping was their favourite leisure activity. As befits their preferences, Chinese consumers dedicate close to 10 hours a week to visiting shopping centres and stores, far outstripping the 3.6 hours a week invested by North American consumers.(3) If these characteristics of the Chinese middle class are the result of a certain stage of socio-economic development or are more idiosyncratic in nature, only time will tell. What is unquestionable is that, given their current and future importance, scrutiny of the emerging consumer has only just begun.

  (3) Chan, W. C. and A. TSE (2007), 'The Consumer Trap: Retailers Need to Adapt to Entice Fickle Chinese Shoppers into Their Stores', McKinsey & Company.

  This box was prepared by lex Ruiz

  International Unit, Research Department, "la Caixa"

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