China’s rising consuming class is an engine of global growth in many discretionary categories

The growth of China’s middle class has been well documented, but its sheer scale continues to be relevant—and remarkable. In 2000, around 1.2 billion Chinese people did not have sufficient income to spend $11 a day in PPP terms. That is the point at which they are considered to be members of the consuming class, who are able to afford some discretionary goods and services on top of the basic necessities. By 2030, we expect about the same number of people to not only join the consuming class but to climb up the income pyramid within it (Exhibit 1).

Consumers in the upper-middle brackets are likely to drive the lion’s share of growth in China over the next decade. By 2030, 60 percent of urban consumption is projected to be driven by upper- middle-income consumers (with annual household incomes ranging from 160,000 renminbi to 345,000 renminbi in real 2020 terms), compared with 35 percent today in our baseline scenario. Another 20 percent of consumption could come from the segment above them, as the “affluent” (with annual household incomes of 345,000 renminbi or more) double their current 10 percent share.

China is steadily becoming a crucial market for categories geared toward consumers with higher incomes. By 2030, it may be home to about 400 million households with upper-middle and higher incomes—roughly as many as in Europe and the United States combined. Over the next five years, it is estimated that the number of millionaires in China may double, from around five million today to ten million in 2025. Thanks to their rising incomes, Chinese consumers are punching well above their weight. China generates about 17 percent of global GDP today, but accounts for a larger share of consumption in several categories (Exhibit 2). Three patterns are emerging in terms of China’s share of global consumption.

First, China is over-represented in discretionary spending categories such as fashion, accessories, consumer electronics, and electric vehicles (EV), relative to its share of global GDP. EVs in particular stand out, due in part to policy support. China not only accounts for 40 percent of global spending on EVs, but its consumption in this category is growing more than seven times faster than the global rate.

Second, China is a similarly outsized market for aspirational goods that are geared to higher- income consumers—think luxury goods, premium beauty and personal care products, and high-end cars. Yet this pattern is not yet observed in some categories of services. In wealth management services and cruises, for instance, China remains under-represented relative to its share of GDP, accounting for less than 10 percent of global revenue pools. This suggests substantial untapped growth potential. Some of that potential is starting to be realized in the case of wealth management. In recent years, this category has been growing at 9 percent per year in China, three times faster than globally.