China as the World’s Consumer

China is now the world’s largest economy, and has become a huge and important market for many businesses. In 2013 Minnesota exports to China totaled $2.5 billion,[1] ranking second to Canada. It is the world’s most populous country, and with a population of over 1.3 billion people represents a full 20% of the world’s population. Aside from the fact that one in every five people on the planet is a resident of China, there has been incredible growth in the number of middle class Chinese consumers. Defined as those earning 60,000 to 229,000 renminbi per year (about $9,000 to $34,000– equivalent in purchasing power parity terms to the range between the average income of Brazil and Italy), the percentage of urban middle class Chinese went from 4% in 2000 to 68% in 2012.[2] In addition, the recent Global Wealth 2014 report by the Boston Consulting Group found that wealth in China grew to $22 trillion last year, with China’s millionaire population second only to the United States, and almost double that of Japan.[3]

In the roughly 35 years since the end of the Cultural Revolution and subsequent reforms under Deng Xiaoping, China has undergone transformation on a national scale rarely if ever seen before in modern history. The last leadership transition in China in 2012-2013 resulted in Xi Jinping becoming president and the head of the CPC. Xi rose to power as a strong supporter of economic reform, and especially after a meeting last fall of the CPC[4] there were hopes that the pace of economic reform would accelerate and extend into additional areas of the economy. That has not happened yet, and it must be recognized that an all-encompassing objective for Chinese leaders, aside from reform and all of the aspirations that follow from it, has been and will continue to be stability and order. The CPC and government see their legitimacy (and survival) as being inextricably connected to the Chinese populace being content with the prevailing economic conditions, and necessary reforms that in the short term are disruptive will be balanced against the paramount need to uphold stability.

Nevertheless, it is expected that China will continue a policy of “rebalancing” its economy to be based more on consumption and domestic demand, instead of the export, manufacturing, and investment focused model that it has followed for the past three decades. While specific reforms may be difficult to predict, there are some larger trends regarding China that are much clearer. As noted in a report on Chinese consumers by McKinsey & Company,[5] a few of the significant trends that deserve attention include:

  1. The emergence of the upper middle class (consumers with incomes between 106,000 and 229,000 renminbi): McKinsey & Company estimates that by 2022, “the upper middle class will account for 54 percent of urban households and 56 percent of urban private consumption.” Upper middle class consumers will be more willing and able to buy discretionary goods, including such items as laptops, digital cameras, and specialized household items.
  2. Sharp growth in luxury goods consumption: Driven by affluent and upper middle class Chinese, consumption of luxury goods has grown at rates of 16 to 20 percent per annum for the last four years. McKinsey expects that by 2015 Chinese consumers in the domestic market and outside the mainland will account for more than one-third of world purchases of watches, jewelry, high end bags, shoes, and ready to wear clothing.
  3. The next generation (teenagers and those currently in their 20s): The most Westernized group of Chinese consumers thus far, in 2012 it numbered almost 200 million consumers and accounted for 15 percent of urban consumption; in 10 years the share of this generation’s urban consumer demand is expected to more than double, to 35 percent. This generation of Chinese consumers will also be nearly three times larger than the US baby boomer generation that has driven US consumption for years.

Regardless of the CPC and Chinese government’s appetite for reform and rebalancing to consumption and domestic demand, it is safe to say that China represents a growing and increasingly important market that many US businesses cannot afford to ignore.

[1] State of Minnesota Department of Employment and Economic Development, Minnesota Annual Export Statistics, (Published May 2014) available at

[2] Dominic Barton et. al., Mapping China’s Middle Class, McKinsey & Company (June 2013) available at

[3] Brent Beardsley et. al., Global Wealth 2014: Riding a Wave of Growth, The Boston Consulting Group (June 9, 2014) available at


[4] The November 2013 Third Plenum of the Eighteenth Central Committee of the CPC. As stated by Wei Yao, China economist at Societe Generale, when considering reform efforts in China “…it was the decisive action that followed the third plenums of the 11th [1978], 12th [1984] and 14th [1993] Party Congress that made those meetings the turning points of the Chinese economy.”

[5] Id. at 2