China's Middle Class Expected to Triple by 2022

If a new bilateral U.S.-China study is even close to correct about the extent of the growth in China’s middle class, exporters in the U.S. and elsewhere are in for a windfall.

The report, “U.S.-China 2022: Economic Relations in the Next 10 Years,” by the China-United States Exchange Foundation, forecasts the middle class in Asia’s largest country will nearly triple from 230 million last year to 630 million by 2022.

If the forecast is accurate, China’s middle class would account for 45 percent of the 1.45 billion people that China’s National Population Strategy Research Report expects in the country in 10 years, up from 1.31 billion in 2012.

China’s growing middle class, the result of rising wages in Asia’s largest manufacturer, already is showing a desire for high-end goods — from cars to electronics — from the U.S. and elsewhere.

The study, released in May, expects U.S. exports to China to comprise $456 billion worth of GDP and more than 2.5 million jobs in the U.S., an increase of 1.8 million over the comparable 2010 figure.

The study was launched at the same time Chinese Premier Li Keqiang wrote in an article in Swiss newspaper the New Zurich Times, “China will import a total of $10 trillion worth of goods and invest $500 billion overseas in the next five years.”

Driving the rapid growth in imports and a more open service sector will be rapid urbanization, which Li has been touting since winning election in March. Some 60 percent of China’s population is expected to live in cities by 2020. Li, meanwhile, also is touting foreign exchange reforms and setting up a mechanism for individuals to invest overseas.

China imported more than $110 billion worth of U.S. products in 2012, up from about $104 billion a year earlier, according to data from the U.S. Census Bureau’s Foreign Trade Division. That made it the third-largest market for U.S. exports, after Canada’s $293 billion and Mexico’s $216 billion. The largest U.S. export categories to China last year were agricultural products, $21 billion; transportation equipment, $16 billion; computers and electronics, $14 billion; chemicals, $12 billion, and non-electrical machinery, $10 billion.

The country has overtaken the U.S. to become the world’s largest importer of agricultural products, with $144.7 billion in fiscal 2012-13, according to statistics released by the World Trade Organization last October.

China’s big appetite for soybeans and corn is partly due to the country’s limited land for farming and to increasing urbanization, which accelerates the nation’s shortages of water.

A recent U.S. Department of Agriculture report said China, the world’s largest rice consumer, is expected to become the world’s largest rise importer in fiscal 2013-14, which ends Sept. 30, 2014. The country’s rice imports this year will rise to 3.0 million metric tons from 2.9 million in 2012-13, the report said.

China also has a large appetite for raw materials, and equipment is huge alongside the country’s development of infrastructure in a booming economy, though growth is slowing this year. China last September approved 60 infrastructure projects valued at more than 1 trillion yuan ($157 billion), stimulating the nation’s appetite for machinery.

The infrastructure boom is the result of the 4 trillion yuan economic stimulus program China launched in 2008-09 as the country looked to boost its economy and minimize the impact of the global financial crisis. China is believed to have spent most of that investment on infrastructure development.

The country’s appetite for gadgets such as iPhones, meanwhile, is growing rapidly now that people have more money to spend within a technology-frenzied culture. Demand for food products, especially dairy, from the U.S. and the rest of the world also is increasing as the growing affluence boosts expectations among Chinese for quality of life as China wrestles with its own food safety concerns.

Luxury goods, however, face a murkier future, because Chinese tend to buy such products when traveling abroad to avoid paying various taxes and duties.

Exchange rates are more favorable for those on the China mainland venturing abroad amid the strong yuan, supported by economic growth and a government seeking to boost domestic consumption.

Chinese officials hope to make China a more consumption-driven economy. Sustaining a high consumption rate, especially on consumer products in China, faces challenges, because the country lacks a good social security system and its strong saving rates are world-renown.

“The stakes (for U.S.-China trade) have never been higher,” said Tung Chee Hwa, chief executive of the China-United States Exchange Foundation and a former chief executive of Hong Kong. “This study comes at a critical juncture in the bilateral relationship; a time when the two countries can either continue unprecedented cooperation or can become sidetracked by an increasing number of frictions and misunderstandings that threaten to complicate the future development of this critical economic partnership.”

Source: Journal of Commerce