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Affluent Will Be Major Driver of China's Growth

Sarah Mikesell
23 November 2012, at 12:00am

CHINA The affluent will be a powerful force behind the growth of Chinas consumer market and account for 5 per cent of global consumption by 2020, according to The Boston Consulting Group (BCG).

The report, titled The Age of the Affluent: The Dynamics of Chinas Next Consumption Engine, discusses the rapid rise and significance of this consumer class.

Much attention has been paid to Chinas middle-class and high-net-worth individuals. But the affluent richer than members of the middle class but not as wealthy as the super-rich have spending habits and attitudes that are distinct. With annual household disposable incomes of at least $20,000, these consumers are set to become an important driver of growth.

Today, the affluent are 120 million strong, and their annual buying power is $590 billion. By 2020, this group will number 280 million 35 per cent of Chinas urban population or 20 per cent of its total population. Additionally, the annual buying power of the affluent will reach $3.1 trillion. That will be nearly the equivalent of Japans total consumption in 2020, 28 per cent more than Germanys, and three times more than South Koreas total consumption.

Businesses that aspire to continued success in China and in their home markets need to deepen their understanding of this complex, diverse, and rapidly growing group.

The Affluent Opportunity

Vincent Lui, a BCG partner and a coauthor of the report, stated, Reaching the affluent is important not only because of their sheer numbers but also because they have the financial resources and willingness to purchase premium goods and services. According to BCGs research, $20,000 in annual household disposable income (which equates to $38,000 in developed countries) is an inflection pointthe point at which consumers accelerate trading up in the categories that matter most to them.

Businesses need to establish lasting relationships with these consumers, added Jeff Walters, a BCG partner and a coauthor of the report. The time to get to know them is now.

Distinct and Evolving Consumers

According to the report, Chinas affluent consumers have several key attitudes and behaviors that set them apart from the middle class and the superrich. The affluent trade up for emotional gratification. They seek status and recognition. And they are relatively sophisticated, traveling abroad and adopting new brands. Although they are willing to pay more for convenience, they buy with a shrewd investors eye.

The affluent are also a rapidly evolving class. Increasingly, more affluent are living in lower-tier cities, affluent women are becoming key decision makers, affluent men are trading up in new categories, and the veterans of affluence are pursuing experiences. An important subgroup is the sugar generation the children of current affluent consumers. This generation currently accounts for 10 per cent of the affluent class, a number that is expected to grow to 30 per cent in five years. Notably, these young consumers, who have led sugarcoated lives, seek out products and brands that set them apartfrom their peers and their parents.

Justin Fung, a BCG principal, noted, To tap this consumer market, businesses need to continually rethink how they position their brands and how they connect with these evolving consumers in China and abroad.

Strategies that companies develop for China will help them succeed in their home markets as well, according to Youchi Kuo, a BCG expert principal and coauthor of the report. Consumers worldwide including the affluent are facing economic pressures. By mastering the affluent market in China, which appreciates luxury but is also conscious of value, companies will be better equipped to reach their local affluent consumers.

A copy of the report can be downloaded at www.bcgperspectives.com.