Chinese Government Pushes to Increase the Middle Class

It’s ironic that people in the United States are complaining about the shrinking of the middle class, while the Chinese government is pushing aggressively to expand its middle class.

Recently, Chinese Premier Wen Jiabao （温家宝） has raised minimum salaries and welfare spending as a measure to close the gap between the rich and poor. Rural per capita incomes increased 12% in the first half of this year, comparing to 10% increase in urban income for the same period.

The rising income left people with more to spend on consumer goods. China’s retail sales increased almost 14% in July. Sales of clothing, furniture, building materials and home decoration goods have experienced substantial growth for the first half of this year.

As part of its strategy to sustain high speed growth without relying on export, the Chinese government also encourages citizens to consume rather than save. Its current five-year plan has a heavy focus on improving the fundamental for consumer spending. The government plans to build retail chains and convenience stores in the countryside.

This is not the first time that the Chinese government intervenes in its economy. Recently, when there was over-investment in real-estate, the government exercised a crackdown. Someone told me that the Chinese government is like a water-skier behind a boat, every now and then yanking on the rope to alter the boat direction a bit if it heads off course.

It’s true the Chinese government is very sophisticated and business savvy. It operates very much like a corporation. As James McGregor pointed out in his book One Billion Customers, if the business community is the “old boys” club in the West, the Chinese government is the “old boys” club in China.

Pretty soon, I would expect a case study from Harvard Business School on how Chinese government has successfully run its gigantic business :-).

China, China business, Chinese middle class, Chinese consumers

A Booming Travel Industry

A booming travel industry in China indicates another strong sign of emerging middle class consumers. The online travel sites such as Ctrip, Qunar (去哪儿), and Aoyou (遨游) have all experienced exponential growth in online airline tickets and hotel bookings.

A recent survey conducted by online travel search engine Qunar.com (去哪儿) – meaning “where are you going?” – portrayed a typical middle class profile: among frequent travelers, about 88 percent have college degrees; 35 percent own their own condominium or home; more than two-thirds have computers at home; and most amazingly, seventy-three percent are using credit cards to book their tickets.

With increased disposable income and a keen desire to see the world, Chinese consumers are spending their money on travel. I see a dramatic shift in their lifestyle, especially pertaining to leisure travel. The hotel chains in China, offering equivalent service to Best Western with reasonable prices ranging from $20 to $40, make traveling quite affordable.

An interesting characteristic of Chinese traveling is organized group travel. As a benefit, many companies provide group travel service to their employees. It works exceptionally well. For companies, it’s a great way for team building and morale; for employees, it’s a practical way to get discounted prices for hotels and airline tickets. Culturally, Chinese are very social and cost conscious. At least at this point, traveling with colleagues doesn’t bother them very much at all. If this trend continues, it will likely result in mass traveling in China in the near future.

Since a few years ago, my sister and her family have been traveling every summer to different tourist destinations such as Dunhuang（敦煌）and Jiuzhaigou (九寨沟), which makes me entirely envious. It’s all because of the organized group travels!

Before long, Chinese will travel abroad. The survey by Qunar says almost 40 percent of current travelers are expecting to travel overseas for their next trip. The immediate destinations for Chinese travelers are Australia, Thailand, United States and Europe. The Chinese travel industry is predicted to reach $1.6 billion in 2007.

China, business, Chinese middle class, travel, lifestyle, Chinese consumers