China is the most populated country in the world. Its working population accounts for approximately 770.4 million people, compared to a working population of 146 million people in the United States. In China, 11% of the population is considered middle class and 2% of its workers overall earn enough to pay income tax.
China's urban middle class accounts for 146 million workers who earn an average annual income of $11,733. In China, nearly 236 million workers are on the brink of middle class; these blue-collar workers earn an average of $5,858 annually.
While it is the most populated country in the world, the country's average annual incomes are much lower than comparable countries. This is mainly because China's economy is known for its low-wage manufacturing. However, China's middle class is growing, due to an increased focus from the government on improving the minimum wage across all sectors and specifically in manufacturing. The Chinese government has also increased its focus on manufacturing and exporting higher-end goods. These initiatives appear to be working. Dispersions of income are especially widening within the middle class, with more consumers moving into the upper middle class, which peaks at approximately $60,000 in annual income per year.
This trend is expected to continue as government initiatives focus on manufacturing production of higher quality goods. Other initiatives from the Chinese government are also in place to help double the real income of low-wage earners from 2010 to 2020. Increases in wages are also expected to increase consumers' daily expenditures and spending within discretionary sectors. Currently, Chinese consumers spend approximately $7 per day, compared to $97 for American consumers.
Global companies and economies are watching China closely for reasons that include the increased purchasing power coming from China's middle class. China's middle class is spending more, specifically in e-commerce, and more of that spending is coming from mobile. This is evident in the expected increase to mobile sales from China's online shoppers. Projections report that by 2020, 74% of all of China's online e-commerce will be done through mobile.
The increase in middle class income has also resulted in companies' expansion into Chinese markets to target middle class consumers. Starbucks Corporation (NASDAQ: SBUX), for example, is opening 500 stores in China, which will gain greater market share from middle-class consumers and increase jobs in the region.
Other companies taking notice of China's middle class spending levels include media companies targeting China's movies and online gaming industries, technology companies lowering smartphone costs and consumer discretionary companies increasing their marketing efforts to target a rising middle class that is seeking more from health, wellness, entertainment, leisure and food services.
China’s Real Estate Market
The real estate market is another sector on watch in China as middle class income levels rise. China's real estate market has seen extensive overcapacity, with commercial buildings and real estate properties unoccupied following a surge in real estate construction that peaked in 2013. In China's real estate market, nearly 13 million homes are vacant. This overcapacity also provides further incentive for the Chinese government to implement initiatives that increase annual average incomes.
Overall, China's middle class workers are significantly improving their income levels due to government initiatives and improved manufacturing circumstances within the country. While the increased income from China's middle class is affecting the country’s economy, it has also been a factor for the global economy. With China accounting for approximately 13% of global gross domestic product (GDP), companies around the world will be looking for opportunities to grow and expand their business in China in order to take advantage of the consumer income growth.