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China Growing Middle Class

In: Business and Management

Submitted By tutup
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Talking about China is talk about an ancient country with a long tradition that has maintained through the centuries, China has a rich history, long lived tradition, firm beliefs and always has been a really big country with everything to succeed, the resources, the knowledge and the people, for every country the people is the most important factor to take into consideration, and China has the biggest population in the world, that is because before of 1850 China had a long time of prosperity and peace and due to that the population grew, then the people wanted more goods and the emperors didn’t want to open the commerce to foreign countries and they had big walls to international commerce because the emperors believed that foreign people were barbarians and they had it all inside of china and they didn’t need anything of foreigners, but the Chinese products like the silk, porcelain and tea leaves were high solicited in Europe and England decided to enter to the Chinese commerce, but how to do that in such adverse situations, well they decided to use a non-honorable way to get into, and that is why they introduced the opium to china to make them desire a product that they didn’t had, and the population became addict to the opium, and that released two wars in which China lose and due to that Hong Kong became a free commerce center according to an a agreement with the English and then one civil war took part in the history and was the biggest of the century, then the new ideas of the end of the century took a place in Chinese minds and due to that the Qing dynasty was overthrown and Mao Tse Tung raised to the power and implemented a lot of well discussed policies that changed China in a big way, but Mao had to die and his successors opened more and more China to the world and now the Chinese society is growing fast and that is a factor that not only Chinese people are aware of, but the rest of the world is aware too because a giant is awakening and we are going to witness that.

In the past recent years china had a big economic growth that amazed the world, growing at rates of 10% GDP per year in a such big country is a challenge, nowadays the GDP growth has decreased at rates of 6% of GDP growth, but that’s not bad news for china, they are continuing growing and the world is putting their interest in China, the society in China is changing and the biggest change is related with the middle class, according to the ANZ investigation “Our projections show that by 2030, China’s middle class by broad definition will reach about 93% of the urban population. Considering both income growth and urbanization, 326m new middle class will emerge in China’s urban areas from 2014 to 2030. The total middle class population will reach 854m in China’s urban areas. In particular, the household income level of the affluent middle class population will likely reach Taiwan’s current median household income level. The rise of China’s middle class will help lift consumption share in GDP to around 50% by 2030 from 36% in 2014″ that is a huge amount of growth, china is standing second in the contribution to the GDP growth of the world just behind USA, and second in population too, but the accelerated growth of China had several cost for the country and their population, for example the environmental contamination or the lack of labor rights in China, that’s why the government have decided to change this problems and became a more sustainable country, in order to achieve that the country had a slow GDP growth in the previous years.
China is facing a problem with the growth of population because that mean that the middle class is going to want to be heard and have a vote in the decisions of the country, that is going to lead China to a new era, what is going to be those changes we do not know now, but it will happen, and I hope that they are taking a good way to do that because not only them depend on that but all the world too because the Chinese economy is so big now that if they failure doing that changes the world is going to be hit hard, for example the Korean economy had to do a similar changes in the 80’s decade changing from being a low cost exporter to an exporter of technologies, they decided to reduce the government regulation in the process and leave the decision to the economy itself, they decided to not attach to old formulas that had worked in the past and evolve with the economy not maintaining the low cost wages and decided to invest in education and technology they had their problems in the transition but they did well and now Korea is one of the best countries to invest on, China have to do the same transition as Korea, a bigger one of course and a fast one too and it seems that China is doing good because they are becoming a more responsible country in all the sectors using good policies to restructure the country.
China has a different idiosyncratic system that we have in western countries, but that is changing too, the government want to invest in public health and pensions in order to achieve that people spend more money and not save it for bad health moments or elderly expenditures, China had a revolution that lead them to this moment and that was experienced for the first generation of middle class in china but them they had children in the 80’s decade and that generation is different from the previous ones because is more open to try new things, they are more risky and want to experiment with new technologies and abroad experiences, that is something that, we the western people, need to understand in order to penetrate the Chinese market, because the market in china is a different one, for example, is not the same; the people that are growing in their careers and want to buy luxury goods in order to achieve a certain social status because they think that is going to be useful to make labor contacts than the people that are experienced purchasing goods ,they are more likely to look for the quality regarding of the brand or the social status attached to a good, even thou this changes the Chinese population is a very conservative one, and that’s why the new generation is so important for the demand of external goods because they are changing the paradigm of the Chinese society, for example China nowadays is the biggest luxury market in the world due to the big growing population, brands like Mercedes, BMW and other have reached high sales in the Chinese market, the country is changing the low cost exports paradigm for a domestic consumption because the countryside people is migrating to the cities in order to get better jobs and opportunities and the cities are growing and they need to generate more employment, that is not a problem when the buyer capability of the middle class is growing and they are becoming richer and more comfortable materially. “Salaries in the city are three times higher than in the countryside. Urbanization is expected to increase from 54% now to 60% in 2020” that’s a good magnet for the countryside people to go to the cities to find a job, the problem with china is that they do not have a good infrastructure in the countryside and that affect the distribution of the goods and the domestic consumption, they are working on that and one way to do it is the Ecommerce for example Alibaba’s web page that do deliveries for all China, facilitating the distribution of the goods regardless the lack of infrastructure problems, following the growth pattern of other countries the affordable discretionary consumption will increase the most in volume terms in China.
China is investing more in education in order to overcome the middle income trap, that is generating that the young people earn more money than the older one, because they are more educated and can achieve better jobs, in gender we are seeing a change too because the women are studying too and the gender gap is reducing, they are more independent persons because probably they are the only child in the family and that creates more independent people, china was strict in applying the one child policy. Topics | DB 2016 Rank | DB 2015 Rank | Change in Rank | Starting a Business | 136 | 127 | -9 | Dealing with Construction Permits | 176 | 177 | 1 | Getting Electricity | 92 | 86 | -6 | Registering Property | 43 | 41 | -2 | Getting Credit | 79 | 71 | -8 | Protecting Minority Investors | 134 | 133 | -1 | Paying Taxes | 132 | 133 | 1 | Trading Across Borders | 96 | 96 | No change | Enforcing Contracts | 7 | 7 | No change | Resolving Insolvency | 55 | 53 | -2 |
If we see the doing business in china is not an easy country to do business, and add to that we have to take in consideration the difference in idiosyncrasy to adapt the western mind to the Chinese way of thinking, but regarding that china is a huge opportunity in the middle term for a company or product that want to expand to the international market.
The ugly part of the Chinese growth is that there was a lot of financial leverage during the economic boom of China in previous years and now there is no more of that and there is a lot of “ghost towns” that are left behind in certain parts of china, for example Xinxiang that is a town where the construction has stopped and the factories are closing, during the good years was a region that was investing in infrastructure and had a good economic growth, then the financial leverage stopped and everything seems to be empty now, a lot of people lose their jobs and the trust in the system, because they lose big amounts of money and they think that china is not going to be the “new American dream” or “Chinese dream“ , that phenomena did not happen only in China but in all around the world, was a generalized decrease in the economy and in some parts was a crisis, china is recovering of that economic crisis too but there is some question that we need to answer, is the country doing too much financial leverage to rescue the companies?, is the system doing the right changes? Is the government committed to realize that changes? Are the Chinese people prepared to the coming changes? And many more that can be in our heads about the Chinese economy and their performance if its good or not, for me the majority of the economist know that there is problems in the Chinese economy but they are optimistic about the good changes that the government is doing and they hope that the economy will grow in the middle term, I think that will happen because the Chinese people are a country with a lot of history that has maintained big and in good condition for a centuries and for me that’s something that is in the subconscious of the people and will lead them to the success in an economic way for this new century.
In conclusion the growth of the middle class in china is going to be a huge opportunity in a middle term time, because not only China will grow but Asia in general too, but they are building those changes right now and in order to get advantage about that opportunity we the westerns have to study the Chinese market, their culture and idiosyncrasy to understand them, and be aware of the treats that can sabotage this new China that is rising.

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