Asia has been host to some of modern history’s most notable economic booms including the Japanese post WWII expansion, which saw the island nation become the world’s second largest economy during the sixties, and the Miracle of the Han River, which was the period of rapid economic growth in South Korea following the Korean war. More recently, it’s China’s rise in the global economy which has been most noteworthy.
Since the introduction of Deng Xiaoping’s economic reforms in 1978, the Chinese economy has grown at an average rate nearing 10% per annum, triple the global average. This is more remarkable when we consider the scale; with 1.4 billion inhabitants, China is home to one fifth of the world’s population and has become the world’s second largest economy behind the US. Indeed, conditions in China now underpin global economic sentiment.
As economies grow across Asia, the rising incomes that follow are creating a burgeoning class of consumers. Much of this growth has come from China, where the labour force is larger than that of the US and Europe combined, and, as these consumers gain purchasing power, their increasing demand will have a powerful effect on global consumption.
Half of China’s workforce still fall into the category of rural workers who are yet to have a major role in driving consumption. The rest include 1.4 million wealthy individuals, 150 million of the rising middle class, and 250 million urban individuals dubbed the “Urban mass”, with average incomes of $500,000, $11,000, and $5,500 respectively. As Industrial growth rolls over, private consumption has become the main driver of economic growth and is forecast to grow 5.5%, in real terms, on average, over the next decade.
Currently, affordability is still an issue. Average daily spending is $7 compared with $100 in the US. Nearly half of purchases are for food and clothing, areas which tend to compress as disposable incomes rise. In the near term, consumption will be shaped by the wealthy and the rising middle class, who make up 11% of the population.
China’s industrial growth has seen an explosion of factories supplying both domestic and foreign markets with many unbranded, value goods. This is an area where the habits of the domestic consumer is expected to develop significantly, shifting demand to more premium segments. Increasing numbers are focusing on small groups of selected brands as they seek higher quality, more reliable goods. Chinese brands have yet to gain much traction in many premium markets with foreign brands holding a leading position.
However, there are exceptions. Huawei’s growing share of the global premium smartphone market is a prime example. The Chinese own 450 million smartphones which has been central to Huawei’s success and testament to consumer’s desire for greater interconnectivity. Has this replaced the need for greater mobility with, in stark contrast, only 4% of the population privately owning a car? Or is this an area which will see increasing demand in the future?
Travel is another area which has seen rising demand. The Chinese took 120 million trips abroad in 2015 spending over $200 billion in the process, surpassing US outbound travel expenditure. Included within this is a propensity to consume abroad, with 30 percent of travellers choosing their destination based on shopping opportunities, spending on branded apparel, luxury accessories and cosmetics.
The story of the rising Asian Consumer class is incomplete without exploring India which boasts a population comparable to China’s. With a GDP per capita of only $1,852, India is roughly where China was a decade ago but it remains to be seen whether India can expand to the same degree. However, with a growth rate of 7%, India is headed in the right direction.
India also boasts a young population of 440 million millennials and 390 million of Generation Z – the generation that follows. This makes up almost two thirds of the entire population. As many of these youths enter the labour force the expectation is for expansion to accelerate. However, there is concern as to whether the country will be able to capitalise on this resource or whether there will simply be too many to accommodate.
Consumption in the near term will rely more on the urban mass and will not be as powerful a story as that seen in China. The country has some way to go to urbanise to the levels seen in more developed economies and the story here is expect to be a couple of decades in the making.
China could assist to enhance this process through its “One Belt, One Road” initiative, which is a strategy which intends to improve trade links between China and the rest of Eurasia. The investment is expected to be in the region of $46 billion but political factors may play a significant role in its implementation.
ASEAN, the region of ten countries making up the south east of Asia, is another area which may benefit from OBOR but again the political factors are significant, especially as China has territorial disputes in the South China Sea with five of the ASEAN countries.
The ASEAN region boasts a population of 640 million but is a diverse group of countries. Singapore’s 5 million inhabitants boast a GDP per capita comparable to that of the US, while Myanmar emerges from decades of isolation. However, if ASEAN was a single country, it would be the seventh largest economy in the world, and it has the third largest labour force in the world, behind China and India.
The data suggests that the ASEAN region is a little further along the curve than India, especially when the slightly lesser developed countries are discounted, and this could be a region of rising consumerism in the coming decade.
The provision of better quality goods, food, connectivity, mobilisation, housing, healthcare and leisure, to service the needs of the emerging Asian consumer, will be a source of global growth in years to come.
|Nominal GDP (Trillion US $)||2.6||2.6||11.3||18.6|
|Nominal GDP per Capita (US $)||3,878||1,852||11,561||57,300|
|GDP Growth (2016)||4.7%||7.0%||6.7%||1.9%|
|Labour Force (% of Population)||54%||39%||59%||50%|
|Adult Population (25-54 yrs)||42%||41%||48%||40%|
|Young Adult Population (15-24 yrs)||17%||18%||13%||13%|
|Youth Population (0-14 yrs)||26%||28%||17%||19%|
|Electricity Consumption per capita (kWh)||948||768||4,310||12,077|
|Outbound Travel Expenditure (Billion US $)||65||18||223||157|
|Smartphones owned (% of population)||21%||17%||58%||72%|
|Internet Users (% of population)||34%||25%||50%||75%|
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