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China and Rise of Disposable Income

In: Business and Management

Submitted By rishinbhatia
Words 1896
Pages 8
"The rise in disposable income and the change in government policy has created an environment for global companies to enter the Chinese market." we will focus on luxury products
Question - How has the income levels changed in the Chinese economy and what factors contribute to the change in the income levels. Also what factors (from an income standpoint) should western firms keep in mind when deciding to serve the Chinese market.

As per the Mckinsey Global Institute (MGI), in 1985, 99 percent of the household lived on income less than 25,00 reminbi, or $3019 per year. An estimated 116 million people in china were living less than $1 a day, by 2004 this number has been by 53 percent to just under 54 million. This has been a historical achievement in one generation. Chinas pro-market reforms and integration into the global economy has enabled China to achieve such success. As real average disposable income for households has grown 3.2 times over the past 20 years to 25,348 renminbi today, china has developed a structure of distinct income levels and the rise of the middle class.

Even though there remains a huge income gap between the rural and urban population. The disposable income for people living in the rural and urban population is increasing. The diagrams on the right depict the rise in their disposal income level in urban and rural households.

Due to the rapid pace of urbanization in China, the annual disposable income per capita for urban households is climbing from 1, 701 RMB in 1991 to 17,175 RMB in 2009. This is equivalent to an 10 times increase. As for rural households, similar trend can also be spotted - a 5.1 raise in annual disposable income per capita to 5,153 RMB in 2009. Subsequently, it can also be observed the growing income and purchasing power of the population in both rural and urban households indicating the improvement in...

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