By Kristofer Hamel, Chief Operating Officer, and Baldwin Tong, Research Analyst, World Data Lab
Poverty is declining worldwide. Yet, reducing poverty is not equivalent to a rising middle class. A large share of the world’s population earns between USD 2 and USD 11 a day (in 2011 purchasing power parity). Only once people start earning more than USD 11 do they tend to have enough extra spending power to make purchases that go beyond basic needs and therefore enter the global middle class. First-time middle-class purchases include personal transportation (motorcycles), housing (first-time renting or low-end purchases), finance (first savings account or loan) and education (tertiary).
Over the next decade, middle-class spending power will shift from west to east due to the huge growth in the middle-class segments (USD 11-USD 110 per day) of India and China. The middle classes of these two countries will represent over 83% of their respective country’s spending power, meaning that businesses should consider their tastes and preferences. Combined, the world’s two most populous countries are expected to represent over 43.3% of the global middle class by 2030.
The rise of India’s middle class: According to the latest World Data Lab estimates, some 600 million Indians are currently poised to become “middle class” over the next decade, resulting in an income segment growth of approximately 144% and an almost tripling in spending power to USD 10.46 trillion. This is one of the largest relative increases of the middle class in Asia and, with continued economic growth, the group will reshape the composition – and the orientation – of the global middle class for the foreseeable future. We predict that by 2030, India’s middle class will number over 1 billion, be 68.4% of the country’s population and represent 83.6% of the entire country’s spending power.
Number of middle-class people in India (2019 vs. 2030); Source: World Data Lab
China’s dominant spending power: By the end of 2030, China’s middle class will grow by approximately 45% and add 370 million people for a total of almost 1.2 billion. This income segment of the population will represent 86.8% of the entire country’s spending power. On its own, the Chinese middle class is expected to be almost one-quarter of the entire global middle class.
While the increase of China’s middle class over the next decade won’t be as dramatic as India’s, China’s spending-power growth should not be underestimated. Chinese middle-class spending power will double over the next decade to USD 14.5 trillion and will be equivalent to the middle classes of North America and all of Western Europe combined.
Breaking down the analysis on a demographic level, the gender distribution of the middle classes of China and India will be roughly the same. China and India are expected to have 1.6% and 2% respectively more males than females in their middle classes by the end of 2030. Gender spending-power gaps will narrow in both countries over the next decade with India’s progress on this front expected to be faster than China’s. Yet, men are still expected to have more spending power than women on average.
The starkest demographic difference between India’s and China’s middle classes is age distribution. Our analysis uses five separate age groups: 0-15, 15-30, 30-45, 45-65 and 65+.
Source: World Data Lab
By 2030, India’s middle-class age distribution will be fairly consistent across all age groups (shares of 22-24% depending on age group), except for the 65+ age group that is expected to be much lower (share of almost 7%). China, on the other hand, will have its largest share of the middle class in the 45-65 age group (30.5%). Overall, the average age of a Chinese middle-class citizen (41.9 years) will be almost 10 years higher than the average age of a middle-class Indian citizen (32.1 years).
What does this mean? Anticipating the size of emerging middle-class segments worldwide with reliable and accurate data is critical for regional and global companies seeking to expand into new markets. The risks of not doing so are considerable. In 2015, it was reported that Nestle, for example, overestimated the expansion of the middle class in Africa and had to scale back its operations.
For regional businesses, the implications of the expansion and democratisation of wealth in India and China appear endless. By 2030, with 29% and over 41% of the country’s spending power concentrated in the USD 11-USD 30 range in China and India respectively, demand for a range of smaller, first-time middle-class purchases will boom over the coming decade. With this will come broader shifts in behaviors, preferences and expectations regarding, for instance, sanitation, security and the level of public services commensurate with increasing tax proceeds. Ultimately, we can expect these shifts to feed broader demographic changes, such as growth in secondary and tertiary urban centres along with reductions in fertility rates amongst poorer segments.
India’s and China’s middle class boom will also have significant implications for global business. In terms of sheer numbers of customers, India’s middle class will overtake China’s to become the largest in the world by 2035. By 2031, middle-class Chinese citizens between the ages of 45 and 65 (around 370 million of them) will number more than the citizens of the United States (362 million). This mix of graying millennials and post-millennials just entering the workforce will disproportionately drive strategic decisions for new tech and service companies across the planet as new businesses increasingly turn to subscription-based revenue models in the sharing economy; India’s and China’s markets will become inescapable reference points and targets.
India will have the most middle class consumers in the world by 2035.
Number of middle class Indians and Chinese (millions of people); Source: World Data Lab
Today, these projections are newsworthy because they require outside observers of India and China to shift their mindsets about the perceived prospects of these countries’ current and future roles in the world. Almost 1 billion people from these two countries will become consumers with disposable income in the next 10 years. Assuming global trends remain the same, India’s ascendancy as the world’s largest middle class will indeed become a reality, and China’s middle class will have a dominant level of spending power. These facts will no doubt seem like obvious forgone conclusions just a generation from now.
29 thoughts on “Look East instead of West for the future global middle class”
Comments are closed.