BOFIT Weekly Review 2016/46
China’s rapidly growing middle class is now also the world's largest
As there is not an agreed definition of “middle class,” estimates of the size of China’s middle class necessarily vary. The Pew Research Institute, for example, finds that the middle-class segment of the population increased from 3 % in 2001 to 18 % in 2011, when middle class is defined as a purchasing-power adjusted (PPP) income of $10–20 a day. Based on Pew’s assessment, China is home to 30 % of the world’s middle class. During the same 2001–2011 period, the segment of the population classified as poor declined from 41 % to 12 %, and the share of the population living above the poverty line, but still not middle class, rose from 57 % to 66 %. Alternatively, the Economist Intelligence Unit (EIU) defines middle class quite broadly (individuals with annual incomes of 13,000–200,000 yuan, or $2,000–30,000. The middle class share of the population is expected to rise from the current 60 % to 75 % by 2030.
China’s middle class is also the world’s largest in terms of wealth. Credit Suisse defines middle class as an adult with net assets (PPP-adjusted) of at least $50,000. In 2015, 109 million Chinese (11 % of the adult population) met this definition of middle class. By this measure, 16 % of the world’s middle class are Chinese.
China’s middle class is still largely concentrated in larger cities, but most growth in the middle class will come from smaller cities. Boston Consulting Group estimates that over 40 % of urban households are now middle class. In addition, 80 % of urban dwellers own their own apartments, but only 30 % invest in shares. Besides a growing middle class, China has substantial low-income population, which is largely composed of people living in the countryside.
China’s consumer market is the world’s second largest and the growing middle class means the market will continue to grow. By some estimates, China is already the world’s largest market for luxury goods, and the audit and consulting firm PwC believes that China’s movie theatre market next year will surpass the United States as the world’s largest. Similarly, China’s online market is now estimated to be as large as the European and American markets combined. In terms of PPP-adjusted GDP per capita, the EIU estimates that the average purchasing power of a Chinese consumer in 2030 will be the same as a consumer today in South Korea or an American in 2000.