Projected Growth and Location of Affluent Households in China
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The combined effect of growing total real GDP and an increased share of that going to the consumer means that Household Incomes in China will double in the next decade to 2022.
This increase in household income means that the distribution of households by income expands out and the higher income segments are where the growth is. (The lower income segments decline in number of households).
For commercial success (i.e. profitable sales and growth) in China it is important to focus on those income segments which are growing in number of households and have an income level to permit a reasonable gross profit margin.
In the current (2023) situation this means targeting households with an income over Rmb 140,000 (circa US$22,000) per annum before tax. Such households are typically two person (and over 40 years of age) and after tax and savings they are spending on average of Rmb 54,000 (US$8,700) per annum per capita. They are also (98%) urban.
The Before tax Rmb 140,00 Household represents 9% of households in 2022 (17% of urban households) and increases to 28% of all households (43% of Urban) by 2022 – significant share growth. In 2022 the urban affluent totaled to 37.7 million households increasing to 114 million by 2022.
However, China is a large geographical area so reaching 9% of households cost efficiently is a challenge for any business. Fortunately such the high income households are concentrated in relatively few urban areas
There are 845 counties (cities) with an urban population greater than 200,000 in 2022. However, just 33 account for 50% of the urban households with a pretax income in excess of Rmb 140,000 in 2022. Furthermore, 100 cities will reach 65% of the urban affluent households.
The key 33 cities share of affluent urban households declines to 39% by 2022 as affluence spreads, but in absolute number of affluent households (i.e. urban households with a pre tax (gross) income greater than Rmb 140,000) these cities increase from having 18.8 million such households to 44.5 million households.
The attractiveness of this segment should not be under estimated. While the number of affluent households in the top 100 cities account for 11% of urban households in 2022, they account for 24% of all urban expenditure. In 2022 they account for 22% of all urban households and 40% of all urban expenditure. Getting a strong position in this segment now is probably a sensible strategic move.
