Not Quite There Yet

Kam Wing Chan and Dorothy Solinger

July 1, 2012

Chasing China’s middle class shoppers has been American business’ “China dream” for decades. In a recent Wall Street Journal article titled “Chasing China’s Shoppers” (June 15, 2012, B1), the journalists attributed the lack of success of some American businesses in China to their misjudgment of its middle-class shoppers' preferences. For example, in explaining the closures of the Barbie stores in China, the authors said, “Chinese parents wanted their girls to model themselves after studious children, not flirts.” While the accuracy of that remark is debatable, the authors have committed a more vital error by using estimates that overstate the size of China’s middle class. The figures they cited, provided by Brookings Institution economist Homi Kharas, claim that the size of China’s middle class is about 247 million today and that it will rise to 607 million by 2020. The numbers look dubious and quite implausible, especially the one for 2020 (a jump of 360 million in eight years?).

A closer examination would reveal that China’s “middle class” is actually much poorer than the writers suggest. The median urban household income ($13,400 in 2010) is only one quarter the comparable US figure; besides, the overall spending power of China’s middle class is also just about a mere one quarter of the US’s (and this is despite that the US middle class is smaller than 247 million). In broad terms, that $13,400 median household income (even adding another 30% hidden “gray incomes”) suggests nothing close to a typical middle-class family’s purchasing power (note too that this sum lies well below the US poverty line, which is $23,000 for a family of four).

An income at this level could not really support a middle-class lifestyle, unless major-emblem items consumed by this group, such as apartments, cars, electronic gadgets, and P&G products (and add in real Barbie dolls) – were woefully cheaper in China than in the US. But we know that those items of the same quality (not fakes) are seldom cheaper in China today. This means that a significant portion of the 247 million alleged “middle class” in China does not qualify as members of that stratum, as it is understood in America. They may have the name – whatever you’d like to call them – but many are still far from sporting middle-class consuming power and living like middle class.