Consumer Tidal Wave on the Way: China's Middle Class ; Due to the Fruits of Economic Liberalization, Analysts Say That China Is Poised for a Consumer-Products Revolution

Article excerpt

Chen Juan has an unusual dream.

"My ideal picture," says the marketing director of Galanz, the largest microwave manufacturer in the world, "is of a Chinese peasant coming home after a day in the fields and cooking supper in a microwave."

Until recently, most people - including Chinese peasants - would have laughed at such a vision. Galanz built its brand, as did almost every other consumer goods company in China, by selling to the prosperous citizens of boomtowns on the east coast.

But now, say business analysts and economists, China is poised for a consumer-products revolution. Whereas the burgeoning elite in China's major industrial cities has spent the last several years cashing in on an export boom, an emerging middle class in the country's interior has only recently begun to see the fruits of economic liberalization. As government policies shift to encourage consumer spending, businessmen may finally realize their fantasies of an enormous, untapped consumer marketing frontier.

"We have to increase the number of people with a microwave oven from 200 million to 1.2 billion," says Ms. Chen, a gleam in her eye as she measures the prospect. "That's where our future lies."

And after many years of waiting the future has arrived, says Andrew Grant, head of McKinsey & Co., the consulting firm, in China.

"At the moment, China's consumer economy is about the size of Italy's, but in two years' time it is going to start adding an Italy every year," says Mr. Grant, noting that while the average Italian spends $11,511 on consumer goods each year to China's $543, the middle kingdom's enormous population makes up for the difference.

The emergence of a solid middle class, in cities and towns across the country, will transform the Chinese market, predicts Shaun Rein, founder of the Shanghai-based China Market Research Group.

"The second- and third-tier cities are where the real money is going to come from in the next 10 years," he predicts, referring to the provincial cities that do not yet enjoy the prominence of Beijing, Shanghai, or Shenzhen. "Everybody is starting to understand that that is where they need to be."

Chen has had her eye on such smaller cities for some time, but then Galanz always has had a nose for a trend. In 1992, its founder Qingde Liang sensed the first stirrings of an acquisitive middle class and got out of the eider export business to make home appliances instead.

With the big East Coast cities saturated, Chen is focusing on "country towns," cities with a million or so inhabitants that are now the company's fastest growing market, accounting for 80 percent of Galanz's microwave sales growth this year.

And that market is set to grow even larger as 300 million more Chinese move into urban areas over the next 10 years in a continuing mass population shift that will see 100 cities grow to a population of more than 3 million.

The bulk of these new urbanites will become members of the middle class, though their incomes - around $5,000 a year - will be modest to begin with. …