07-29-2004, 12:30 AM
The Future of Chinaâs Middle Class
by
Milton Kotler
President, Kotler Marketing China
Shenzhen, November, 2002
www.kotlermarketingchina.com
A middle class is growing in China. By most estimates, it numbers 15 percent of the population and totals 110 million people. It is estimated to reach 200 million by 2005 and 490 million by 2010. China can become the largest middle class of any country in the world.
âMiddle classâ has a relative meaning. In terms of the buying power of an average or quartile income, it does not mean the same thing in every country. In China it begins with an income floor of 100,000 â 150,000 RMB ($12,000 USD). The U.S. middle class base level is higher. Whatever the country income differences may be, it does mean a generalized expectation to buy goods and services that every middle class around the world has to some degree or other â homes, autos, furniture and appliances, electronics, vacations and travel and education. It is a life style of things and values distinguished on the one hand from laboring poverty and on the other from opulence. China also has a small new opulent class and a massive old class of laboring poor.
The middle classes of different countries buy things in different degrees of quantity, quality and frequency. An American may replace his vehicle more frequently than a Chinese owner. The square meters of a Chinese condominium may be less than a U.S. condo. A Chinese middle class family will spend a greater percentage of their income on the early development and education of their child than an American. A vast landscape of differences of degree appear when you look at the middle classes of Japan, U.K., India, France, Germany, and other developed and developing countries.
But the middle class in each case is the anchor of the economies of these countries. This class buys the goods and services that represent the greatest portion of their own countryâs GDP. This is different from the laboring poor who produce goods and services for others which they cannot buy themselves. The opulent buy everything they desire without concern for cost. The middle class increasingly gets more of what it wants, but with increasing concern for cost.
The middle class today in every country comes from earlier generations of laboring poor and rural classes. The opulent come from earlier generations of middle class families. There are exceptional leaps during a single generation.
All countries have a problem with these different classes. They want a big middle class to consume what is produced and imported. They want a rich class to invest risk capital in new enterprises. They want a laboring class to be more productive than any other, so that they can produce at lower cost.
But the relationship between classes can become distorted, as is happening in the U.S. China must watch this trend closely to avoid the pitfalls.
The U.S. situation has been well described recently in the New York Times by Paul Krugman in his article âThe Disappearing Middle Classâ. Krugman cites some surprising data, which argue that the U.S. economy of 2002 has returned to basically the class distribution of the 1920s. The keynote of that distribution was a large laboring and rural class, a small middle class and a visible plutocracy that owned the greatest portion of the wealth of the country.
The distribution changed radically from World War II to the 1970s. Krugman argues that government economic and fiscal policy deliberately advanced the expansion of the middle class, until it dominated U.S. economy and society. Tax policy and public economy drove private and public investment to internal development, until it built a huge middle class consumer market that reached its apogee in the 1970s. Everybody thought they were middle class! They had a home, a car, a refrigerator, a TV, an air conditioner, vacations and vacation homes. The super-rich did not publicly display their opulence. The middle class was big in size and the dominant social norm of the society. Suburban America replaced Café Society.
Krugman argues convincingly that this has been changing since the 1980s. Today opulence has returned front stage and center. The plutocrats are in the spotlight. 13 thousand U.S. families own the same wealth as the lower 20 million of American society. In fine-tuning statistical deciles, Krugman shows that the bell shape is inverting. The rich are getting richer and fewer, the poor poorer and more numerous, the middle class more constrained than ever to remain middle class, as they face job loss, real income decline and ponderous debt.
What caused the government to change its policy course toward another social norm. Krugman, as an economist, dares a social thesis. The answer is twofold: first, conservative politics and new economic theories; next, the explosion of mass media that can promote any new change a million-fold.
Thirty years ago in America it did not look good to be a plutocrat. Mansions were for eccentrics and idiots. The proud life was middle class suburbia. Today, Krugman argues, this ideal is perishing. Every youngster strives for a Ferrari and a mansion and acknowledges, if not approves, whatever it takes to get there â greed, chicanery, sex, violence, drugs. There is a new plutocratic mass culture that abjures moderation and middle class family values and esteems opulence. Krugman thinks this is bad and knows that most people are afraid to admit it. They prefer denial.
What can China learn from this? A Middle class life style is growing rapidly in China. The good life becomes more accessible and visible. Condominiums grow like gorgeous flowers in Shanghai and Shenzhen. Cars are numerous. Department stores are carrying better lines and there are boutique shops in malls for the great world brands. The East Coast of China is getting a middle class look and attitude. Family life remains strong. But great wealth is also rising.
The big question is what will great wealth do? Will it invest its private and controlling capital in the value that can be extracted from a growing middle class through competitive markets? Or will the super-rich deflect their fortunes away from competitive domestic investment in a consumer market and instead spend it on display or send it abroad for safety and external development? Allowed to pursue its own course, great wealth will monopolize industrial and commercial power, as it did in the U.S. in the period of 1890s to 1920s. The super-rich will aggregate fortunes for monopolistic control of feeble markets.
Will a middle class economy and social norm evolve in China? Krugman suggests that depends on government policy and mass media. Will the Chinese government advance or retard the emerging middle class of China? Will they encourage the media to set a middle class tone for the society? Will they encourage the investment of foreign and domestic wealth in the expansion of domestic consumer markets? Or will they allow new plutocrats to enrich themselves through domestic monopolies and external trade and consign China to a laboring future?
China has built its wealth for two decades on an export economy generated by wealthy people, government managers and laboring classes. A middle class future for China requires educated professionals and skilled technicians who build internal markets for domestic prosperity. Domestic mass markets are the key to the middle class norm. That was a lesson that America learned from the 40s to the 70s with an American public policy that encouraged competitive internal investment balanced by export growth. But now Americaâs global focus on external investment and its media profligacy is retarding the middle class and returning power and aspiration to a new plutocracy. The U.S. is losing its balance and along with it the massive middle class that it has cherished. China must be careful to maintain its balance between export led growth and domestic mass market investment. Only then can China achieve the great scale of middle class toward which it aspires.
http://www.kotlermarketing.com/resources/m...iddle.Class.doc
by
Milton Kotler
President, Kotler Marketing China
Shenzhen, November, 2002
www.kotlermarketingchina.com
A middle class is growing in China. By most estimates, it numbers 15 percent of the population and totals 110 million people. It is estimated to reach 200 million by 2005 and 490 million by 2010. China can become the largest middle class of any country in the world.
âMiddle classâ has a relative meaning. In terms of the buying power of an average or quartile income, it does not mean the same thing in every country. In China it begins with an income floor of 100,000 â 150,000 RMB ($12,000 USD). The U.S. middle class base level is higher. Whatever the country income differences may be, it does mean a generalized expectation to buy goods and services that every middle class around the world has to some degree or other â homes, autos, furniture and appliances, electronics, vacations and travel and education. It is a life style of things and values distinguished on the one hand from laboring poverty and on the other from opulence. China also has a small new opulent class and a massive old class of laboring poor.
The middle classes of different countries buy things in different degrees of quantity, quality and frequency. An American may replace his vehicle more frequently than a Chinese owner. The square meters of a Chinese condominium may be less than a U.S. condo. A Chinese middle class family will spend a greater percentage of their income on the early development and education of their child than an American. A vast landscape of differences of degree appear when you look at the middle classes of Japan, U.K., India, France, Germany, and other developed and developing countries.
But the middle class in each case is the anchor of the economies of these countries. This class buys the goods and services that represent the greatest portion of their own countryâs GDP. This is different from the laboring poor who produce goods and services for others which they cannot buy themselves. The opulent buy everything they desire without concern for cost. The middle class increasingly gets more of what it wants, but with increasing concern for cost.
The middle class today in every country comes from earlier generations of laboring poor and rural classes. The opulent come from earlier generations of middle class families. There are exceptional leaps during a single generation.
All countries have a problem with these different classes. They want a big middle class to consume what is produced and imported. They want a rich class to invest risk capital in new enterprises. They want a laboring class to be more productive than any other, so that they can produce at lower cost.
But the relationship between classes can become distorted, as is happening in the U.S. China must watch this trend closely to avoid the pitfalls.
The U.S. situation has been well described recently in the New York Times by Paul Krugman in his article âThe Disappearing Middle Classâ. Krugman cites some surprising data, which argue that the U.S. economy of 2002 has returned to basically the class distribution of the 1920s. The keynote of that distribution was a large laboring and rural class, a small middle class and a visible plutocracy that owned the greatest portion of the wealth of the country.
The distribution changed radically from World War II to the 1970s. Krugman argues that government economic and fiscal policy deliberately advanced the expansion of the middle class, until it dominated U.S. economy and society. Tax policy and public economy drove private and public investment to internal development, until it built a huge middle class consumer market that reached its apogee in the 1970s. Everybody thought they were middle class! They had a home, a car, a refrigerator, a TV, an air conditioner, vacations and vacation homes. The super-rich did not publicly display their opulence. The middle class was big in size and the dominant social norm of the society. Suburban America replaced Café Society.
Krugman argues convincingly that this has been changing since the 1980s. Today opulence has returned front stage and center. The plutocrats are in the spotlight. 13 thousand U.S. families own the same wealth as the lower 20 million of American society. In fine-tuning statistical deciles, Krugman shows that the bell shape is inverting. The rich are getting richer and fewer, the poor poorer and more numerous, the middle class more constrained than ever to remain middle class, as they face job loss, real income decline and ponderous debt.
What caused the government to change its policy course toward another social norm. Krugman, as an economist, dares a social thesis. The answer is twofold: first, conservative politics and new economic theories; next, the explosion of mass media that can promote any new change a million-fold.
Thirty years ago in America it did not look good to be a plutocrat. Mansions were for eccentrics and idiots. The proud life was middle class suburbia. Today, Krugman argues, this ideal is perishing. Every youngster strives for a Ferrari and a mansion and acknowledges, if not approves, whatever it takes to get there â greed, chicanery, sex, violence, drugs. There is a new plutocratic mass culture that abjures moderation and middle class family values and esteems opulence. Krugman thinks this is bad and knows that most people are afraid to admit it. They prefer denial.
What can China learn from this? A Middle class life style is growing rapidly in China. The good life becomes more accessible and visible. Condominiums grow like gorgeous flowers in Shanghai and Shenzhen. Cars are numerous. Department stores are carrying better lines and there are boutique shops in malls for the great world brands. The East Coast of China is getting a middle class look and attitude. Family life remains strong. But great wealth is also rising.
The big question is what will great wealth do? Will it invest its private and controlling capital in the value that can be extracted from a growing middle class through competitive markets? Or will the super-rich deflect their fortunes away from competitive domestic investment in a consumer market and instead spend it on display or send it abroad for safety and external development? Allowed to pursue its own course, great wealth will monopolize industrial and commercial power, as it did in the U.S. in the period of 1890s to 1920s. The super-rich will aggregate fortunes for monopolistic control of feeble markets.
Will a middle class economy and social norm evolve in China? Krugman suggests that depends on government policy and mass media. Will the Chinese government advance or retard the emerging middle class of China? Will they encourage the media to set a middle class tone for the society? Will they encourage the investment of foreign and domestic wealth in the expansion of domestic consumer markets? Or will they allow new plutocrats to enrich themselves through domestic monopolies and external trade and consign China to a laboring future?
China has built its wealth for two decades on an export economy generated by wealthy people, government managers and laboring classes. A middle class future for China requires educated professionals and skilled technicians who build internal markets for domestic prosperity. Domestic mass markets are the key to the middle class norm. That was a lesson that America learned from the 40s to the 70s with an American public policy that encouraged competitive internal investment balanced by export growth. But now Americaâs global focus on external investment and its media profligacy is retarding the middle class and returning power and aspiration to a new plutocracy. The U.S. is losing its balance and along with it the massive middle class that it has cherished. China must be careful to maintain its balance between export led growth and domestic mass market investment. Only then can China achieve the great scale of middle class toward which it aspires.
http://www.kotlermarketing.com/resources/m...iddle.Class.doc