THE CHINESE MIDDLE CLASS AND THEIR FDI IN THE PHILIPPINES

The Size of China’s Middle Class

Current estimates put the size of China’s middle class at 400 million people or 140 million
households. This is less than one-third of China’s total population. Among them, the urban
affluent population is concentrated in the eastern and coastal provinces that witnessed rapid
growth as China invested in developing local industries and supply chain logistics capabilities that
could connect easier with the rest of the world.

Their Median Income

According to official data, a middle class household in China earns between RMB 25,000
(US$3,640) and RMB 250,000 (US$36,400) in a year.

More recently, the National Bureau of Statistics put out an official definition for the first
time, where it stipulated that people earning a monthly income of RMB 2,000 (US$295) to RMB
5,000 (US$740) constituted as ‘middle income’ earners in China. This is far lower than the average
in OECD countries.

In fact, a 2015 report by the investment banking firm UBS and PricewaterhouseCoopers puts
the size of China’s middle class at only about 109 million people – by setting a higher income
threshold between US$50,000 and US$500,000.

Official Chinese calculations would assign such wealthy Chinese in the ‘high income’ bracket.
The National Bureau of Statistics has stated that anybody earning more than RMB 10,000
(US$1,480) a month would qualify as high-income.

Growth Rate of the Middle Class

China’s middle class expanded substantially as its urban population grew from constituting
19 percent of its population in 1980 to reach 58 percent in 2017.

In 2000, just four percent of China’s urban population was considered to be middle class,
rising to over 30 percent in 2018.

A study by consulting firm McKinsey & Company projects that 76 percent of China’s urban
population will enter the middle income bracket by 2022. Their study defined middle class urban
household earnings at US$9,000 to US$34,000 a year.

While this range is much lower than in developed countries, when adjusted for market
prices, it allows for a comparable middle class standard of life in China.

How does the Chinese middle class spend their money?

 Education, healthcare, elder care, rising debt, and housing costs dominate the spending of
hundreds of millions of China’s urban white-collar professionals and private business owners.

And, while their fortunes have grown with China’s rise, so too have the costs of living in the
cities. For example, most young Chinese families still depend on their parents for financial support
when buying their first car, let alone a home.

Young middle class families cut costs by buying goods in bulk and during sales and rarely
eat out or travel abroad. Priority is instead given to paying school fees and meeting high tutoring
costs.

Higher income households also invest on extra-curricular activities for their children, such
as music or dance lessons, to provide them an edge as they grow older and explore options to
study abroad.

This is because Chinese parents invest in education as a critical means of stepping up the
economic ladder – a much more difficult proposition for the millions who make the move from
more interior regions to second and first-tier cities.

The stakes can be incredibly high – China’s college entrance examinations see more than 10
million students competing to secure a spot in one of the 150 tier-one universities.

In addition, complicated household registration rules mean that those living in China’s
sprawling urban agglomerations often must support elderly parents and family members back in
their ancestral or rural homes.

China seen to still play a crucial role in PH future

China, the world’s second largest economy, is seen by industry stakeholders and
administration officials to continue playing an important role in the Philippines' future, to the
benefit of more Filipinos.

This is amidst a second-quarter survey of the Social Weather Stations (SWS) indicating that
about half or 51 percent of adult Filipinos have little trust, while 27 percent with much trust in
China, for a net trust rating of -24, classified by SWS as poor.

Trade Secretary Ramon Lopez said “China is very supportive of our exports thrust and has
opened up their market to our exporters.”

Lopez said Philippine exports to China grew about 8 percent, compared to 1 percent in 2018.

China’s foreign direct investment (FDI) to the Philippines also increased significantly from
average 2010-2015 of USD 17 million to around USD 178 million in 2018, added Lopez, also the
Board of Investments (BOI) chairman.
China as One of the Top 5 Emerging Markets with the Best Middle Class
Potential
The rise of the middle class in emerging markets has captured the enthusiasm of global
businesses, especially in the context of weak demand growth from developed economies. In
targeting emerging middle class consumers, the most successful companies are those which can
fully assess the middle class potential in prospective markets. For the long-term period through
to 2030, Euromonitor International has identified five emerging markets with the best middle class
potential, which are China, India, Indonesia, Nigeria, and the Philippines. In these countries, the
middle class is set to become a prominent consumer force thanks not only to their large size, but
also their strong income growth prospects and a median income exceeding US$10,000 (in
constant 2014 prices) per household in 2030.

China: Set to remain the world’s largest middle class by 2030

Despite its slowing economy, China remains a potent lure for multinationals and
there will be plenty of opportunities for businesses looking to target the country’s middle
class consumers with rapidly rising purchasing power. In 2014, the number of middle class
households – defined as those with between 75.0% and 125% of median income – stood
at 112 million, which made China’s middle class the world’s largest. By 2030, the Chinese
middle class is expected to keep its top rank, as it will swell to 137 million households.

What is more, China is expected to enjoy robust median income gain over the long
term. Euromonitor International forecasts that during the 2015-2030 period, the median
disposable income in China will grow by 89.0% in real terms to reach US$19,709 (in
constant 2014 prices) per household – an income which will give Chinese middle class
households significant capacity for discretionary spending.

Sources:
1. https://www.china-briefing.com/news/chinas-middle-class-5-questions-answered/
2. https://www.pna.gov.ph/articles/1076129
3. https://blog.euromonitor.com/top-5-emerging-markets-with-the-best-middle-class-potential/