China's middle class, a modern force with timeless cultural imperatives, will reshape the world. To harness its spending power, marketers must realize that becoming modern and international is not tantamount to becoming "Western." The following discussion outlines the core motivations and conflicts that drive middle class consumption in China.
How would you define the Chinese Middle Class, who are they, where are they and when did they emerge?
Nobody has yet to really come up with a suitable definition, but for our purposes, if we define the lower edges of the middle classes as households earning 5,000 RMB a month (around USD 1,400 on an adjusted Purchasing Power Parity (PPP) basis) and the core middle classes as those earning 20,000 RMB a month (about USD 5,700 on an adjusted PPP basis), then we see that this is a very penny pinched middle class. There are around 125 million people that probably fall within the category, basically, anyone that is not struggling for day to day survival. It is certainly a fallacy that this class exists in the primary cities only; they are to be found in every city across China, as can be seen in the growth of car ownership across all the cities. The question is, however, what proportion of them exist in each city?
The middle classes as a demographic only really came about at the start of this decade. In 1992, Deng Xiaoping made his famous tour of the south, uttering his famous catchphrase "to get rich is glorious", his economic reforms unleashed capital, but the impact on people's lives was not really felt until the late 90's, making the Chinese middle classes a very new phenomenon. The sheer scale and magnitude of this transformation and in the context of the Chinese world view, marks a spectacular inflection point for China and the world today.
How is the Middle Class growing in China and where is growth strongest?
We are seeing two different curves emerging here, growth in the primary cities, where a critical mass has been reached already and growth in lower tier cities, which has barely even begun, but where growth is by far the strongest due to targeted government policies. Every year more and more people will join the rank and file of the middle classes, being able to afford their lifestyles. It's important to note, however, that China is still far away from being a middle class society.
How do the Chinese Middle Classes view themselves?
As a quick aside, there is a bit of a labelling issue here as 'middle class' is not really a politically correct term, very few would want to classify themselves as middle class. But back to the question at hand, the Chinese middle classes believe that with the right competitive tools, an opportunity will come by which will allow them to transform their lives, in contrast to a blue-collar labourer, who will see his social and economic status as more or less fixed.
The middle classes believe in social mobility, their environment can now offer them the chance to change and improve their lives. This is what being middle class is really all about, to transform lives and improve physical wellbeing, it's a move beyond the already satisfied lower levels of Maslow's hierarchy of needs of survival and physical safety requirements towards a need to satisfy social status requirements. The middle class engages with society to get recognition for their (financial) successes. It's important to note though that this is not about arrival, it's about being on the right journey, they see theirs as an arduous, perilous, continuous struggle upwards and there is an acute awareness of the precarious and unpredictable slipperiness of this journey, that all could be lost and taken away in the bat of an eyelid. There is a need to project how high you have climbed, but also to protect that ascent. Insecurity abounds. Insecurity based on cultural, economic and political factors. The Chinese have an understanding with their ruling classes that government must be responsive to people's needs, the middle classes trust that their government will protect their interests, otherwise the contract they have with them will unravel. People are not protected by civic institutions, there is no political representation, and wealth is not protected institutionally. The middle classes are wracked with anxiety, it's a very tough world out there and unless they carry on generating, it is all too easy to slip back to the bottom. What goes up can and often will come down.
What are the challenges facing the Chinese Middle Classes?
On an economic level, there is a sense that wealth is not protected and that individuals need to fend for themselves as they will not be provided for otherwise. More subtly, on an emotional level, there is a sense that there are certain, essential rites of passage to middle classdom, such as homes, diamond rings, education, car ownership and other expenditures that are needed in order to cross that threshold. But these items are expensive, incomes are limited and disposable incomes remain low, yet these are necessities and need to somehow be paid for, so what to buy? As we said earlier, this is a very penny pinched middle class, who do not have much flexibility on how they spend their money. There is a very rigid, set way of how you become middle class; you will be required to posses certain hallmarks, but which ones to choose as incomes are so limited?
There is a lot of anxiety about how to make progress up the mountain, the question is, how to arrive at something more sustainable, particularly for men who carry a great burden as the person responsible for the family; men do not feel in control of their destiny, there is great anxiety, how do you defuse that sense of loss of control? In Confucian society the burden on men to be the providers is very absolute and very heavy, its not just a question of providing, society will judge you on whether you are an upstanding member of society by your ability to provide; your value is derived from whether you have lived up to your masculine obligations to provide and here, its not the individual who is the productive unit, but the clan and as a man, you are responsible for the overall wellbeing of your clan, this places an enormous burden on men.
Individualism in the western sense, although aspired to, does not exist in China. In the west we admire those who have transgressed the constraints of societal norms and broken free of its shackles and rules, thriving beyond and independently of these, achieving success on ones own terms. In China, what is big are egos, it's the opposite of western individualism that no longer cares about how they are judged by society, in China, individuals are incredibly conservative and conventional and derive all their value from how they are perceived by society. The individual is looking for society's endorsement and qualified stamp of approval that they have mastered the rules and have been able to climb society's predefined hierarchy. This yearning to be recognised as having conformed exactly to society's expectations puts an enormous pressure on individuals. This stifling need to conform can be seen in how a child is raised, the education system and the relationship between teachers and parents. We see this all the time in advertising, we have to work so hard to get creativity and individualism, individual initiative is seen as a high risk threat and is discouraged here.
Very tellingly, a westerner's typical fantasy of escape is usually very horizontal, being on an island for example, whereas the Chinese transcendence is vertical, flying, or being on a mountain, being in total control of what is beneath you, i.e. the definition of success is to master your surroundings, or really, to master society's rules and hierarchy.
How are the Chinese Middle Classes evolving?
Historically, the Chinese are incredibly price sensitive when it comes to products for the home, these items will not be seen by outside society and given the need for conspicuous consumption outside the home, cost savings for items within it are required, as the home is rarely visited by outsiders and is considered to be a private sanctuary. As incomes are increasing, this is changing, people do now place more value on quality and are prepared to pay a bit more for the home, but predominantly even these more expensive home items are still used as markers for success.
Travel is now also a marker of success and is a new dimension of what it means to be middle class, showing that you are on the journey, literally and figuratively!
The range of goods that will be consumed are changing as the middle class evolves. There is now much more of a need and a growing desire for self-expression and to liberate oneself, which is one reason why digital has become so fundamental, the new generation is using digital to have a more expressive life. These outlets, seeing the need for self-expression, will become more pervasive as time goes on.
Individualism is eve's apple, the allure is intoxicating, but if you bite into it you will be banished. Companies will need to decide how to play with the aspiration of individualism and the reality of social conformity. But, what is absolutely not happening, is the Chinese middle class becoming western, they are becoming modern, they are becoming internationalised, but they are not becoming western. The structure of Chinese society is very different than western society. There is one underlying truth in Chinese society that says the only absolute evil is chaos and the only absolute good is stability and order, this is a prerequisite for progress on a national and individual level and why the unit remains the clan and not the individual. Every strand of Chinese thinking reinforces the supremacy of stability and order, this is inculcated from a young age; China is unique for its conflict between ambition and conformity, from abiding to the hierarchy to pulling yourself up the hierarchy, this only exists in the Confucian footprint, in Japan this conflict is not nearly as severe, but in China this conflict defines the topography of the Chinese heart.
What are the aspirations of the Chinese Middle Classes, what do they want?
A key insight here is that Chinese people will say that all they want is to be happy and to be in control of their destiny, but actually, this ideal is not truly practical for them. People will talk about it, it's an ambition, but it's important not to oversimplify. The Chinese know how tough it is out there and they know that they will need to struggle to advance; therefore their practical goals are to keep on struggling up the hierarchy, the Chinese are not truly interested in taking it easy. 'All I want is to be happy', is a dreamt escapist desire, as opposed to a concrete aspiration.
How does the State view the Middle Classes and how is the State providing for them, are they hindering or helping them?
The Chinese have an extraordinary ambivalent relationship with the State; they see the central government as there for them to advance and to make order from chaos. They would never trade in the Chinese system for democracy. On the other hand there is a frustration with the slow pace of reform and evolution of the structure that should protect the interests of society. Everyone wants institutional reform, but no one wants rebellion, they want a continuation of the status quo, the State is the lynchpin that holds society together. People do expect that government will become more responsive to their needs and they also see the enormous progress that has been made and are content that things are getting better. Corruption, however, is a problem and is very dangerous for the government, people see corruption as the government not being responsive to their needs. But people need their strong government as they still have an underlying fear that things could fall apart at any moment.
The Chinese culture increases tolerance for a government that has continued power to frame the current issues of the day and to issue top-down commands. Due to cultural imperatives, the tolerance is far greater than we would like to admit to in the west. The speed of reform compared to what people can tolerate is merely a question of degree. Because per capita incomes are still at such low levels and because urbanisation still has such a long way to go, it will be decades before the basic current structures of power become a critical contradiction. When China has moved from low level manufacturing to service based economic growth, if by that stage society does not advance, once there is a solid middle class base, then there might be problems, but this is still decades away from happening.
How can companies reach out to the Chinese Middle Classes and connect with them? Examples of successes and failures?
Success in China is rooted in having insights that uncover fundamental motivations and bringing your product in alignment with these. Every product that charges a premium needs to be a tool for social advancement.
Examples of success would be De Beers diamonds, in ten years of entering the market, the penetration of diamond engagement rings has gone from 8% to 80%. They were able to do this by understanding the motivations; marriage in China is different then it is in the west, in the west we like to believe that passion and romance will last forever, in China, however, it is commitment that lasts forever, not love as such. De Beers sold themselves as giving the Chinese man a tool to demonstrate his reliability.
Ford is another example that is doing better than everyone expected. It does not sell itself on how good it is to drive its cars, but by how they can transform people's lives. Of course it depends on the model and which societal class you belong to, but fundamentally the allure is how the cars will help you to advance up the hierarchy in some shape or form, this in fact is why China has overtaken the US in the growth of automobile ownership, not because the Chinese need cars, but because it's a threshold of middle classness - companies who want to succeed in China need to bring their products in line with the Chinese world view and structure of Chinese society.
Rejoice Shampoo, from P&G, has also done a very good job at maintaining its position within the market, it has done this through its 'confidence through softness' advertising, i.e. that the beauty of your hair will be noticed by other people.
Häagen-Dazs moved to outdoor consumption as they knew this was the only way to get people to pay the premium on their ice cream, it's a great way for a boy to impress a girl by taking her to eat at such an exclusively expensive indulgent venue. Starbucks is doing much the same thing.
In China the product is a means to an end, the message driver has to be that this product will make you noticed and help you on your journey upwards.
The Chinese have no excuse to be buying luxury goods, given their level of income, but luxury is so externalised it enables inconspicuously conspicuous consumption, i.e. to show off without being seen to do so. There is a craftsmanship to selling products in China, it's communicating how your product will help the owner solidify their status, but avoiding clichés.
Is there a difference in how Middle Classes live at home and in Public and if so, why?Home is a retreat, your private castle; Chinese do not throw dinner parties, home is a private domain and needs to be respected as such. You will not see people spending money on expensive bedspreads. However, comfort is important and the willingness to indulge is growing, but not fast, foreign, premium priced items for the home are still going to struggle a lot more with their lower priced, domestic counterparts. Chinese consumers are becoming more educated about quality and are ruthless quality hunters; they are becoming much more demanding about quality, which is normal as the middle class evolves.
The digital revolution is also becoming so fundamental to the way the Chinese express themselves and define their identity. In the west, digital is functional, we use it to make transactions and find things, in China it is much more emotional, they use it to chat and for entertainment.
What products and services do the Middles Classes aspire to have? Growth in home ownership, DIY, car ownership etc
Service industries will explode in China over the next few years, from Banking, to Investments, to Healthcare. There is a dearth of good service here, which is often very unpredictable. On the one hand the Chinese have been conditioned not to demand service, but needs are needs and they are now starting to demand better quality services. However, there seems to be an ever widening gap of what's available and what is being demanded. The time is absolutely ripe for foreign companies, with more knowledge and experience than their domestic counterparts, to enter the market. The question is though, will the government recognise the need for foreign competition and that domestic companies are simply not equipped to meet expectations? Will they allow sectors to liberalise and open up? If not, resentment will surely grow and there could be a real struggle ahead.
Originally published in Chamber Eye, the magazine of the British Chamber of Commerce of Guangzhou