The Definition of the Chinese Middle Class

The definition of the Chinese middle class can be confusing, depending on who you talk to or which numbers you use. The most common definition uses income as a measurement. According to a McKinsey report From ‘Made in China’ to ‘Sold in China’: The Rise of the Chinese Urban Consumer, the middle class Chinese are those who earn annual incomes, in terms of purchasing power, somewhere between $13,500 and $53,900. The Chinese government defines the middle class as the households with an annual income between 60,000 to 500,000 yuan, or about $8,800 to $73,500 at a 2008 exchange rate.

But these numbers are misleading because the cost of living is very different in China than in the West. For example, a person making $1,000 a month in China can make a pretty good living, whereas in the U. S., he or she probably can’t make ends meet. A rule of thumb is that middle class people are those who have one-third of their income for discretionary spending. These people have passed the threshold of survival and do not have to worry about the basics such as food and clothing, and they have some disposable income to buy leisure products and services.

In addition to income measurement, a Chinese think tank further defined the middle class as those with a college education and occupations ranging from professionals in management and technology, to entrepreneurs, to civil servants (meaning government officials). They believe that being middle refers to not just income, but also education, status and lifestyle. They don’t consider less-skilled professions such as a waitress as middle class.

Unlike in the United States, the Chinese middle class is concentrated in large cities. They are relatively younger than middle class Westerners. Since “middle class” is a Western concept, to a certain degree, it is a myth to many Chinese. For example, some people think middle class Westerners all own homes, drive cars and travel for vacations. They believe that middle class people should have good manners and enjoy an above-average standard of living.

In my forthcoming book The Chinese Dream, I use a combination of these definitions: urban professionals and entrepreneurs aged between 25 and 45, who have college degrees and earn an annual income between $8,000 and $70,000, consisting of about 250 million people.

Photo credit: ChinaLuxCultureBiz

China's Victoria Secret

Today, I received an email from a friend of mine from Beijing, announcing his new online start-up La miu (www.lamiu.com) – a China’s Victoria Secret to be. This is at least the second “China’s Victoria Secret” I have heard among my circles of friends. The other one is Herbella (www.herbella.cn) in Shanghai. Who knows how many more are out there?

Photo credit: be Lamiu girl

The message is clear, though, that the consumer market in China is booming. According to a McKinsey report, currently, China’s overall consumer market ranks about equivalent size to Italy. By 2025, China will become the third-largest consumer economy in the world behind the U.S. and Japan (I haven’t worked on the numbers, but it’s hard to believe that China, with its population ten times of Japan, will still be a smaller consumer market than Japan?).

When I was traveling in China, I was totally overwhelmed by the number of consumer products in department stores. Poor Chinese consumers must have been bombarded by too many choices L.

Yiping Zhu, the founder and CEO of Herbella, told me that Chinese consumers didn’t have role models, therefore, were open to try new products and accept new brands. Although most of them didn’t care about brand, more and more people started to have brand awareness. “The challenge is that the Chinese consumer market is very fragmented,” he said, “top 10 brands in lingerie have less then 10 percent of the market share.”

My guess is that China’s consumer market will always be fragmented, at least in the foreseeable future because it’s such a big country with diverse consumers. It’s a challenge as well as an opportunity – there is room for many players. The real potential is in 2^nd and 3^rd tiers cities. Think about it: China already has 170 cities with more than one million people. By 2025, there will be 221 cities with one more than million inhabitants.

The good thing is that the middle class Chinese have started to pay attention to diet, fitness, and healthy lifestyle. When women start to buy fancy lingerie, they are not just buying sexy bras and underwear, they are also beginning to have a sense well-being and self-respect.

Chongqing

I arrived in Chongqing in the late afternoon of May 12^th, without knowing about the devastating earthquake in Wenchuan, which is about 200 miles northwest of Chongqing. The taxi driver told me that even people in Beijing and Shanghai felt the quake. I knew the situation was pretty severe.

There were many aftershocks. To be cautious, I changed my hotel room from 22^nd floor to the 10^th floor. In the middle of the night, I felt my bed was shaking and people in the hallway were yelling and running. I guess I must have been too tired, I thought I was dreaming and fell back to sleep.

Things started getting back to normal in a couple of days. Chongqing is a city that grows on me. When I first arrived, I thought Chongqing was too crowded, with ugly buildings densely standing next to one another. But after a few days, I started to like it.

Chongqing is also known as a "foggy city." Although there is no blue sky, the air was not full of smog like other cities in China. All the taxis and buses were fueled by natural gas. Chongqing is China's largest production base of natural gas, which can supply Chongqing alone for about 300 years.

Chongqing is also one of the fastest growing cities in China. In a single day new construction can add approximately 137,000 square meters of usable floor space to satisfy demands for residential and commercial space. Everywhere I went, I saw high-rises that go on and on and on…. yet there are more buildings under construction.

Geographically, Chongqing is like Manhattan – a peninsula embraced by two rivers. The night before I left Chongqing, I went to Chao Tian Men, where the Yangtze river is joined by the Jialing river. The lights on both sides of the banks were shining spectacularly. People were dancing in the parks and squares. Women were beautiful, wearing Calvin Klein, Max Mara and other name brands.

Pretty soon, Chongqing will be another Shanghai!

I saw the Olympic torch relay in Guangzhou!

I was so disappointed by not seeing the Olympic torch relay in San Francisco. Guess what? I saw it today in Guangzhou! And I couldn’t believe my luck – it ran through the street right in front of my hotel!

Thousands of people were gathering along the Liu Hua Road in the morning, waiting to see the torch relay. Contrasting to the tension between protesters and supporters in San Francisco, people in Guangzou enthusiastically welcomed the torch arrival. The banner says: "One World, One Dream."

Exactly at 1:30 pm, the torch runner, holding the "sacred fire" and waving to the people on both sides of the street, was running proudly in front of where I was standing. People were cheering: “China, go on!” “Olympic, go on!” Some people even climbed onto the tree in order to see the torch.

I was glad that people in Guangzhou were not disappointed, and I was grateful that I was given the second chance to see the Olympic torch!

Our capacity for acting on our hope

I had a conversation with Rob Watson, a leader in green building movement and founding father of LEED – a certification program and benchmark for designing and constructing green buildings. For the past decade, Rob has been instrumental in developing China’s green building standards.

With its unprecedented urbanization and a growing middle class, China is adding a New York City every two years. The question on everyone’s mind is where all the resources will come from and whether China can sustain its growth.

photo credit: eco-tech international

Rob seemed concerned. Human should abide by the law of nature, he said. A large middle class in China could reap huge benefits for the world economy, but also could cause potential disasters. “The middle class consumes ten times more than peasants,” he said. “Even if 20 percent of the people become middle class, it means adding another United States.” He was worried that at some point China may have an economic heart attack.

Rob’s concerns are certainly valid. But I am a glass-half-full kind of person. I believe that it is precisely these challenges that put China in the frontier of green innovation and technology.

China has committed to invest $265 billion in renewable energy by 2020. Rob told me that China is leading in solar thermal technology, and catching up in wind. A report by The Worldwatch Institute indicated that if China can scale up the renewable energy technologies for its domestic market, the same technologies will be adopted at affordable prices on a massive scale around globe.

China has the world’s toughest problem, as Rob said. No one has the right to deny hundreds of millions people to pursue “the Chinese dream” and have a better life. I agree with Rob that China should not copy Western style of development that resulted in severe environmental consequences. China has an opportunity to walk a different path.

William McDonough, the renowned architect and author of “Cradle to Cradle,” has designed buildings that produce more energy than they consume. He envisions a world of abundance where eco-friendly design can prevent environmental disaster and drive economic growth at the same time.

“Bill is an amazing thinker and visionary,” Rob said. “Conceptually, he is right. But in reality, the model hasn’t proved to be scalable.”

photo credit: eco-tech international

But I remain hopeful. What if the "Cradle to Cradle" model becomes scalable? If we can go to the moon, why can’t we clean up our mess on the earth and re-make a world “based on nature’s interdependence cycles” that sustainability and prosperity go hand-in-hand?

I would like to end this post with William McDonough’s words: “One of the wonders of human nature is our ability to hope…. Still more human, perhaps, is our capacity for acting on our hope.”

China’s Urban Billion

A recent McKinsey Global Institute report “Preparing for China’s Urban Billion” says that the country’s unprecedented urbanization will continue over the next 20 years, and by 2030 China's urban population will reach 1 billion. Here are some numbers that are indeed mind-bogging:

- By 2025, China will have 221 cities with more than one million inhabitants – compared with 35 in Europe today.

- China’ urban population will expand from 572 million in 2005 to 926 million in 2025. Over 350 million people will move from rural areas to the cities – more than the population of the Unite States.

- By 2025, China could have 15 super-cities with average populations of 25 million people. 41 percent of China’s higher income middle class will live in Beijing, Shanghai, Tianjin, Wuhan, Chongqing, Chengdu, Guangzhou and Shenzhen.

- China will build almost 40 billion square meters of floor space over the next 20 years, requiring construction of 50,000 new skyscrapers – the equivalent of ten New York Cities.

- Up to 170 cities could meet planning criteria for mass-transit systems by 2025, more than twice the current number in Europe. This could promise to be the greatest boom in mass-transit construction in history.

The report also says that China’s urban economy will generate 90 percent of its GDP by 2025. Urban China will become a dominant global market with its aggregate consumption almost twice, and disposable income over two times, those of Germany.

Businesses have not only an opportunity to leverage China’s booming middle class and a stratum of affluent consumers, but also to become major investors – in road and rail, public-transits, the energy-supply infrastructure, and energy efficiency technologies.

Thoughts on Recent Events of the Olympic Torch

Like thousands of people who went to see the Olympic torch relay in San Francisco, I was deeply disappointed by not seeing a single flame. Later, I watched the videos of the live reports on Youtube. My heart sank to the bottom. I have never seen anything like this: the Olympic torch – a symbol of world peace – was heavily guarded by three walls of police and security.

The first wall was the “blue guys” – the Chinese “torch body guards,” the second wall was police motorcyclists, and the third wall was fully armed policemen. Since when has the Olympic torch to be protected by an army troop? To me, the torch run has completely lost its meaning, and it was a bigger embarrassment than what had happened in Paris.

I understand the protesters have the right to protest and they were trying to make their point. But such protests can hardly get their point across and may even just do the opposite. Although they made it clear that they were not protesting against the Chinese people but the government, the Chinese people were angry and rallied behind their government more than ever.

Unlike Americans who separate themselves from the government, Chinese still see the government as their representation, or their collective “face,” especially on the international stage. When the government was humiliated, they felt they were losing face, therefore, humiliated; when the government was criticized, they took it personally and believed they were attacked.

It seems today Chinese are angrier toward foreigners than their government. It's not surprising that many young people were calling for a boycott of Carrefour – a popular French supermarket chain in China. The strong sentiment of nationalism is troublesome. The irony is that although Chinese are vocal against foreign media’s biased reports, they are mute on the government’s news censorship, which contributed to the problem in the first place.

A young entrepreneur, who owns an interior design firm in Beijing, once told me: “We know our problems, but it’s not up to Westerners to point the finger at us.” He said he couldn’t care less about politics – or democracy for that matter, as he had all the freedom to do anything he wanted.

Early this year, a top think-tank in Beijing released a “political reform plan,” which laid out the detailed blueprints for building a “modern civil society,” and eventually “mature democracy and rule of law.” I haven’t read the report, but according to a Reuters article, the report indicated that “freedom of the press is an inevitable trend” and current political system is incompatible with the economic growth. It mapped out three phases of reform in the next 12 years, including human rights, religious freedom, and restriction of the communist party’s power.

It seems that China is moving toward the right direction. The most important thing is that the world cannot afford to have a “closed China” and go back to the Cold War. Economically, America and China are too inter-connected and inter-dependent. America has a lot of influence on China in many areas, but not by bullying (which I believe is one of the reasons for the strong nationalism among the Chinese youth), but by engaging and leading by example.

The Olympics, which was supposed to be a great opportunity to show the world what China has achieved, is turning out to be a great challenge to China’s leaders. It would be interesting to see how events unfold in the next few months.