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The Dynamics of China’s Next Consumption Engine

The Age of the Affluent
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As China’s economy has grown, much attention has been paid to its middle class and its high-net-worth (HNW) individuals. Less noticed has been its affluent population. Richer than the middle class but not as wealthy as the superrich, the affluent class has spending habits and attitudes that are distinct from both. At 120 million strong and with $590 billion (RMB 3.7 trillion) of buying power, the affluent class is not yet as large as the emerging and current middle class combined, nor does it have the same spending muscle. But it is growing fast.

Overall, within the next three years China is projected to overtake Japan and become the world’s second-largest consumer market. The affluent class is central to this rapid rise and will drive nearly half of this growth. As the incomes of today’s middle-class consumers increase, many will join the affluent class, which will grow to be an even more powerful force of 280 million people, or 20 percent of China’s population, by 2020. The spending of the affluent will grow fivefold to $3.1 trillion. This will be equivalent to approximately 35 percent of China’s total consumption and more than 5 percent of global consumption. It will also be nearly as much as Japan’s total consumption, 28 percent greater than that of Germany, and three times more than South Korea’s total consumption. (See Exhibit 1.)