As the American consumer frets about job security and stagnating wages, those in the growing middle classes of the developing world are just starting to get a taste of a western shopping experience. With more than a billion residents, China is quickly shifting from a manufacturing hotspot to the new bastion of consumerism. While there is much debate over how long the Great Chinese Building Binge can last, one thing is sure, its new minted consumers have plenty of room to run.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Increased Consumption

Approximately 70% of all Chinese citizens will live in or near cities by 2015. This is a dramatic leap upwards from the 43% of urban dwellers recorded in 2006. This urbanization is helping fuel the growing ranks of wealthy Chinese. Recent worker strikes this past spring have also resulted in higher wages. Total household wealth is estimated to more than double to nearly $35 trillion by 2015. The nation will surpass Japan to become the country with the second highest household wealth in the world.

These increasingly wealthy shoppers are evolving in the way they shop. For the new Chinese consumer shopping is becoming entertainment. Malls and hypermarkets like Wal-Mart (NYSE:WMT) have become fun destinations. Analysts at McKinsey & Co. found that 73% of Chinese consumers viewed shopping as a leisure activity, nearly 45% identified it as one of their favorite pursuits, and just over half said it was one of the best ways of having quality time with family.

There is a direct correlation of the desire to buy more and better products and rising incomes in China. Roughly 75% of all urban households have traded up in at least one product category as their income levels rose. In addition, credit card balances in China rose more than 17% in 2009. The Chinese consumer is getting more comfortable with holding debt to a certain degree.

Ringing the Register
With the Beijing government handing subsidies on everything from cars to new appliances, China's consumer culture will continue to grow. This expansion offers investors a great long term theme for a portfolio addition. The broad-based Global X China Consumer ETF (Nasdaq:CHIQ) offers a quick and easy way to the play the theme. The fund follows 40 Chinese firms across various sectors in the consumer space. Investors can also use the Emerging Global Shares Dow Jones Emerging Consumer ETF (Nasdaq:ECON) to play not only China's growing middle class, but Brazil's, India's, etc. Additionally, there are other ways to play the premise.

Spending by Chinese travelers is estimated to grow to more than $110 billion by 2015, up from $43 billion. Most of that spending will go to other Asian economies with Hong Kong getting the lion's share. According to the Hong Kong Retail Management Association, sales gained as much as 30% from a year ago during China's Golden Week holiday festival. As China's economy grows, so will Hong Kong's. The iShares MSCI Hong Kong Index (NYSE:EWH) is the best way to benefit from this relationship. Booking all those flights, travel site Ctrip.com (Nasdaq:CTRP) will also benefit.

The luxury sector in China is growing at a brisk pace. Handbag maker Coach (NYSE:COH) has been quick to capitalize on this trend. The company expects sales from China to double by 2013 and has opened 13 new stores in the nation this year and has increased its square footage by 50%.

Finally, as more Chinese consumers move to more urban areas, they will crave more creature comforts. Blender, toaster oven and appliance manufacturer Deer Consumer Products (Nasdaq:DEER) is a perfect way to play the growth in demand for microwave ovens and juicers.

The Bottom Line
With America's consumers suffering along with the daily ebb and flow of the economy, China's consumer is just getting started. With the increases in urbanization and rising wages, the Chinese shopper will be a force to reckon with in the upcoming years. Investors with long enough timelines should consider adding a dose of Chinese consumer stocks to their portfolio to play this growth. (For related reading see Investing In China.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  4. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  9. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  10. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!