Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
RISING CONSUMERS ON THE HORIZON IN CHINA AND SOUTH AFRICA
Rising Consumers on the Horizon in China and South Africa
Keisha Hill
Across China and South Africa, rising incomes are creating a new class of consumers. As
these consumers gain purchasing power their needs and preferences will have great impact on the
global economy. Although separated by almost 7,000 miles in geographical distance, China and
South Africa have many similarities as it relates to the growth in their consumer markets. Some
of the largest business opportunities in South Africa and China will be in their rising consumer
markets. From 2000 to 2010, the size of the Chinese economy more than doubled increasing
consumption from around $650 billion to almost $1.4 trillion. (Townson 2012) While both countries
can expect growth in consumer markets there are differences in the way these changes will
manifest.
There are many different theories used to define the middle class, and how much one
needs to earn to fall into that category. The dictionary defines the middle class as the
socioeconomic class between the working class and the upper class. However, in South Africa
the middle class is loosely defined as a household of four people with a total income between
5,600 and 40,000 Rand per month after income tax, which is approximately $400- $2900 USD
(Business Tech 2016). Similarly, defining the Chinese middle class can vary and be confusing,
depending on the source or which numbers you use. According to “The official data from
China’s National Bureau of Statistics, the Chinese middle class is categorized as households with
an annual income ranging from $7,250 to $62,500 (60,000 to 500,000 Yuan)” (Wang, 2010).
RISING CONSUMERS ON THE HORIZON IN CHINA AND SOUTH AFRICA
By the beginning of the next decade both China and South Africa will see a significant increase
in their middle class population. According to a report by McKinsey “Over the past decade more
than three and a half million South Africans have been lifted out of extreme poverty. As of 2015, the
country’s consuming class grew to encompass about nine million households, accounting for $191
billion in private consumption.” (Woetzel 2015). The rise in the middle class in South Africa has also
vastly increased the size of their black middle class. The countries black middle class was estimated
to be 4.2 million in 2012, which is just over 50% and is double the rate in 2004 (Business Tech,
2014). “Of the 8.3 million adults classified as middle class in 2012, 51% are black, 34% white.
South Africa's middle class pends a whopping $40 billion annually on average” (Dürr 2013).
Increased spending power by the black middle class has caused an influx of fast-food outlets, as
well as increased spending on travel, groceries, and apparel. China has also seen exponential
growth in the expansion of its middle class, with 300 million people moving into its middle class
over the last 30 years. The Chinese middle class will be one of the biggest economic growth engines
in the years to come, as a projected 200 million people will join the middle class by 2026. If these
projections are accurate China will account for more than 66 percent of the world’s middle class
population by 2026. (Woetzel 2013).
One would expect that vast increases in the middle class would significantly increase the
demand for luxury products and upsurge spending. In China purchases have followed this
predictable trajectory, while consumers in South Africa continue to make cautious financial
decisions. According to McKinsey, “South Africans are still under tremendous financial pressure due
to higher prices (inflation has averaged 5.4 percent over the past five years, edging up to 6.4 percent in
2016) and low real growth in wages (averaging 1.3 percent in the past five years) (Magnus 2012)”.
Despite increased purchasing power, inflation and wage increases keep spending stagnant.
RISING CONSUMERS ON THE HORIZON IN CHINA AND SOUTH AFRICA
Studies show that even if their financial situation were to improve, South African consumers
will not necessarily increase spending. In a study conducted by McKinsey, survey respondents said that
“if their income were to rise by 10 percent, they would spend only about 22 cents of every additional
rand; the rest would go into savings and toward paying off debt” (Magnus 2012). Among consumers
who said they would spend a portion of their extra income, most said it would be to buy everyday
necessities. On the other hand, South Africans belonging to the middle class have increased
discretionary income, which has increased consumption of buying new cars, modern electronics,
mobile phones, houses and designer clothes. In particular the middle class, has relatively high
spending levels. This is particularly true for the new black middle class that has emerged. These
consumers seek sophisticated goods and tend to spend less on vital commodities or housing.
On the contrary, Chinese consumers have continued increased spending on products that offer high
value for low cost and luxury items. Consumer focused companies that have mastered providing value
while remaining affordable, have flourished. They have focused on providing basic necessities such as
furniture, washing machines, and small residential apartments.
In South Africa approximately 32 percent of overall household consumption expenditure
went to housing, water, gas and electricity. They also tend to spend large quantities on
transportation, and food and beverage, which make up 17.1 and 12.8 percent respectively (Stats
SA 2013). The breakdown of South African consumer spending by category is illustrated
graphically below.
RISING CONSUMERS ON THE HORIZON IN CHINA AND SOUTH AFRICA
Source: (Stats SA, 2013)
There are several key habits that both Chinese and South Africans share. Both proactively
search for savings, are brand loyal contingent on price, and search for value. It is imperative that
companies give consumers solid reasons to choose their product or store over alternatives. The
