Introduction Since the implementation of economic reform and opening up in 1978, China has adopted a pragmatic approach to running the economy which has resulted in a socialist market economy with Chinese characteristics. This socialist market economy has allowed China to maintain her socialist status but adopt practices of other advanced economies to modernise the country and to improve the standard of living for her people. For example, while land still belongs to the socialist state, the right to use it for 30, 50 or 70 years can be the same as in any capitalist country. Economic reforms initially in the primary sector, followed by the secondary sector and recently in the tertiary sector such as retailing, have released the dynamic force of individual initiatives.
This combined with the rapid growth of foreign investment have propelled the economy at double digit growth at a time when the whole Western world is agonising with the pain of high unemployment-rates and continued downsizing programmes even by blue chip companies. The economic reform and the rapid economic growth have transformed Chinese society. Over 110 million people have joined village and town enterprises and are transformed from under-employed farm labourers to wage earners with money in their pockets. For people who are able to exercise private initiative more than others, they stand a better chance of obtaining a bigger share of the economic pie. They comprise the increasingly emerging middle income household in China. The Emerging "Xiao Kang" Family or Middle Income Household in China Middle class is certainly a Western concept for the Chinese.
In China however, there is a lot of discussion on "Xiao Kang" (little rich) family. In a way "Xiao Kang" families are the Chinese version of the middle class. What is "Xiao Kang"? "Xiao Kang", in Confucius ideology, is the state of a society where people live and work happily. In today's context, the official view of "Xiao Kang" livelihood means the following: 1. People eat well, having more quality and nutritious food.
2. People dress well, paying more attention to aesthetic outlook and appearance. 3. People live well, having nicely furnished home plus consumer durables which provide convenience and entertainment.
4. People enjoy a cultural life with significant increase in circulation of newspapers and magazines. Back in 1984, Deng Xiao-peng, the architect of economic reform in China set the target of "Xiao Kang" livelihood for the whole country to be achieved by the year 2000. He recognised that for the size of a country as big as China with great regional differences between cities and countryside, he would need to set a modest target. The target he and the central government planners set was US$800 GDP per capita in 1980 dollar value. Middle income household by definition refers to urban families.
It is therefore important that we examine the middle income household or the "Xiao Kang" families in urban China. China has 1. 2 billion people, 35 percent live in cities - a total of about 567 cities. In terms of GDP per capita, it is interesting to note that the average city is three times higher than the average for villages and towns. The average of coastal cities is double that of the average city and the average of special economic zones (SEZ) is again double that of the coastal cities. In a way, the more open the economy is, the higher is the economic development and living standard of the people.
The magnitude of differential is as high as twelve times in terms of GDP per capita when we compare the special economic zones with the average village / town. The economic development strategy in China is a "points-line-surface progression." The points are the coastal cities and special economic zones which are developed first bringing about prosperity to the whole coastal area (i. e. line) and from there reaching inland gradually bringing prosperity to the entire surface of the country which, of course, will take many decades to achieve. Since some places grow faster and earlier than others, we are already witnessing the result of the economic reform over the past one and a half decades.
That is the emergence of the "Xiao Kang" consumers and families who have the discretionary income to purchase modern consumer goods and services. Where do these "Xiao Kang" families come from? The main sources are as follows: 1. Managers who work in the existing 100, 000 joint-ventures and wholly owned foreign companies (approved joint-ventures currently number over 220, 000). 2. Owners of the 20 million private enterprise and self-employed business which are known as Ge-Ti-Hu in China. 3.
A large number of managers of the 21 million township enterprises (semi-private enterprises). 4. A large number of managers in foreign trade corporations, banks, insurance companies and stock brokerage firms. 5. Managers in well-run and profitable state enterprise. There are no precise figures about the total number of the "Xiao Kang" families but it would probably be in the region of 30 to 40 million families for the whole country or around 20 million families in the cities.
The latter constitutes close to 20 percent of the urban population. It is encouraging to note that the economy continues to open up with increasing foreign investment and that restrictions on many service sectors are being further relaxed. We can, therefore, expect more people reaping benefits of the economic reform and hence more "Xiao Kang" families. The "Xiao Kang" families or the middle class in China also express their needs in different ways.
Let's talk about education first. Higher Education More and more young people of "Xiao Kang" families are enrolling for higher education. They see having a college degree as the route to success. Since 1978, enrolment has more than tripled, to 2.
5 million. But higher education, which used to be free in China, will now carry a price-tag. More top-rated colleges in China are now charging students annual tuition fees. Within two years, tuition will be charged at all of China's 1, 000 over universities. Graduates of the past were required to accept jobs chosen for them by the State as a repayment for free education.
Now, by paying for their education. students will have greater leverage in selecting their careers. The government also has plans of establishing computer courses in some primary and middle schools. In recent years, the country has seen the proliferation of pre-schools and private schools in major cities.
At the work front, pre-employment and on-the-job training in different professions have been gradually introduced to improve efficiency. China is now staging a massive training programme to train certified public accountants across the country. The target is to train more than 60, 000 CPAs in the next five years, bringing the total to 100, 000 by the end of the century. The country has at present about 38, 000 CPAs.
Better Housing Conditions The Chinese " Xiao Kang" families are spending more of their income in acquiring their own homes or decorating their existing apartments. This is reflected in the average expenditure pattern of urban households. The surge in building of homes in China is also reflected by the rising living space per capita in both urban and especially rural areas where land is easier to find. How large is the home market? According to official sources, the target for home building in the cities and towns (excluding countryside) is 200 million square meters a year.
This represents a building boom of three to four million apartments in urban China each year for many years to come. The home market for the countryside is almost four times that of the urban areas, or 750 million square meters a year. In Beijing alone, the estimate for reconstructing dangerous and old houses in the city amounts to RMB 28 billion or US$3. 3 billion. Beijing has over 160 million square meters of old residential houses, accounting for one-third of the total area. Beijing is one of the few Chinese cities testing China's first fully commercial housing scheme backed by the World Bank.
In Shanghai, it is estimated that about 1. 5 million households or 60 percent of the city's total households are living in premises that need massive repair, with their areas totalling 35 million square meters. In Guangzhou, the demand for luxury homes exceed supply, Both the rich local Chinese and expatriates are snapping luxury villas completed in recent years. Indoor renovation and decoration is now almost like fashion in the cities. "Xiao Kang" families want to live more comfortably at home. Many change the floors of their apartments, wall-paper the walls, renovate the kitchen, upgrade the doors or window frames or enlarge the sitting rooms etc.
Official estimate of the indoor decoration market amounts to 15 billion yuan or about US$2 billion a year. This figure can only go up due to rising consumer expectation and housing boom everywhere in China. More Informed Populace The information revolution is steadily coming to China and this is going to play a great role in changing society's attitudes. The proliferation of information and entertainment services has become a vital part of China's modernisation leading to new ideas and new aspirations. Even in the tightly regulated area of mass media, we witness the setting up of Easy FM radio by AWA of Australia, and Joy FM radio by Metro News of Hong Kong. Other electronic media such as BBC, USIA, CNN and C ETV (Robert Chua's China Entertainment Television Broadcast Ltd) have achieved different degrees of success in penetrating the China market.
Trade magazines and tabloids have begun to grow roots in China in the past 10 years or so. Consumers are now increasingly exposed to a variety of titles now serving many market sectors, such as computers and electronics, medicine, technology and industrial sectors. Catching up with its Asian neighbours, China is now on the threshold of a computer explosion. Computer product sales in China surged 43 percent in 1993 to US$3 billion, up five-fold in 1990, with hardware accounting for 60-70 percent. The sale of PCs increased 80 percent to 450, 000 units.
By the end of the century, China could become the world's biggest PC market. Moreover, China plans to set up a national computer network to link its over 1, 000 universities and colleges by the year 2000. The country intends to computer ise its educational and research institutions and train specialised personnel for the information superhighway. In fact, Guangdong Province started operating three data communication network which can transmit data, voice, image and video information. Increased Mobility While private autos are not yet common at the moment, cars are now at the top of the list for well-to-do families.
In fact, China is planning to produce a family car to market to the middle income consumer in the next decade. This means more frequent contacts with people in other areas, convenience in travel, and literally a faster lifestyle. Currently, the annual demand for motor cars of all types is slightly over one million but will rise to the three million level by 2000 and around six million by 2010. Demand for family car is expected to reach half a million by 2000 and 2. 5 million by 2010. The current annual demand for motorcycles is more than three times that for motor cars.
The annual demand growth is 50 percent plus for the past three years and the trend is likely to continue for sometime. Individuals of the "Xiao Kang" families also want to see the world. At the moment, there is a lot of procedures governing overseas travel, hence many official business travel is actually a disguise for pleasure trips. Overseas travel by PRC nationals were 2. 9 million in 1993 and probably about four million in 1994. Estimate for the year 2000 is 10 million.
The Hong Kong Tourist Association reported that mainland Chinese travellers to Hong Kong reached 1. 9 million last year and is now the largest source of visitors to Hong Kong for the first time, replacing Taiwan in top spot. Mainland Chinese s increased spending to US$1. 4 billion, up 33 percent compared to 1993. South-east Asia, particularly Thailand, Malaysia and Singapore, is another main destination for many PRC travellers. Expressways and railways are being built in various parts of China to improve the transport system within the country.
New international airports are likewise being planned or built in Zhuhai, Shenzhen, Pudong and airport expansion work is being planned or carried out in 40 other Chinese cities. China now has 798 aircraft and will need at least 800 more aircraft over the next 15 years according to Chinese sources. More Leisure Pursuits Economic reform and opening up of the country have also helped to set better working conditions. The Chinese people now enjoy a new working environment, which means fixed hours, standard holidays and vacation periods. Prior to recent reforms, most Chinese employees worked six- to seven-day weeks with no vacation and few holidays. More time for activities outside of work has generated a new demand for leisure activities and products, domestic travel tours and sporting activities and equipment.
China has announced a 40-hour work week (five-day week) effective May 1, 1995, which is going to further boost the leisure industry. Discos, night-clubs, and karaoke bars have proliferated in China's major and secondary cities. American-style cinemas are soon to appear in China. China's huge audience and limited recreational facilities provide the ideal conditions for state-of-the-art cinema in the country. Golf courses with extensive resort facilities and hotels have been built or are being built in Beijing, Shanghai, Guangzhou, Zhuhai, Shenzhen, Bei hai and a few other major cities.
Formula One racing is also held periodically in Zhuhai. More theme parks and play areas are being opened for China's children. Changing Consumption Patterns Chinese consumer preferences change with the time and place. The adventurous marketers who dare to challenge tradition and engage in market research have made significant inroads into the Chinese market. We are now witnessing: o The greatest tea drinking country beginning to consume coffee. o The rapid expansion of Coca-Cola and Pepsi-Cola in a beverage market which was originally dominated by the orange flavour.
o A country which is proud of its three hundred ways of cooking a chicken welcomes Kentucky Fried Chicken with open arms. o Dogs become pets at home instead of cuisine on dinner tables! More and more Chinese consumers are patronising fast-food outlets. McDonalds and Kentucky Fried Chicken each has a few dozen outlets in China. Other outlets such as California Fried Chicken, Pizza Hut, and Cafe de Coral are also present in China. The government has set its direction for the development of the fast-food industry by continuing the import of foreign-flavoured fast-food in order to enrich China's fast-food market. The rapid social changes are also reflected in consumer aspirations which have changed with the times.
In the 70 s the Three Bigs - durable goods which people aspired to own - were a bicycle, a sewing machine and a radio. In the 80 s, the Three Bigs were a TV, a washer and a refrigerator. In the 90 s, the Three Bigs are a VCR, a motor cycle and a telephone. Currently, even Chinese cities have low telephone penetration. In 1994, China has 30 million telephone lines, 10 million pagers and over one million mobile phones. Gradually, more and more Chinese consumers in urban areas are snapping up designer fashion, high-priced jewellery, Swiss chocolates, French wines, Italian shoes, American cosmetics, personal computers, video disk players and even imported cars.
China's demand for polished diamonds will increase four-fold in the year 2000. In 1994, China's demand for gold reached a record high of 224 metric tons and demand for the first quarter of 1995 increased by 24 percent compared to same period of the previous year. More Chinese consumers are now buying Swiss watches which are retailed through high-class merchants in many of the major cities where they maintain luxurious shops with impressive western-style window displays and showrooms. Shanghai's fashion industry has more than 4, 000 factories, providing 250, 000 jobs and turning out goods and services worth US$1. 2 billion last year. Wool-producing countries are targeting China with blitz TV advertising as part of a new US$5 million campaign aimed at wooing young Chinese buyers.
China was the only country in which a TV advertising campaign was being run. Last month, Shanghai staged an international fashion festival, marking another major step towards becoming a world fashion centre. Hence, with the Chinese consumers's pending power becoming stronger, more and more local and foreign investments are pouring into China's retail industry. More than 500 supermarkets have sprung up in Shanghai alone and more people are taking advantage of these facilities.
Yao han, the Japanese retail chain, announced that they planned to build 1, 000 department stores / supermarkets in China in the next 15 years. And in the near future, there will be a significant increase in the number of retail outlets in China accepting foreign credit cards. This is part of the process of developing a new retail distribution system throughout the country. China's first credit card was issued in Guangzhou in 1983. By end of 1993, more than four million cards had been issued and credit card transactions amounted to US$23 billion. The use of credit card is now being promoted to the 300 million residents of 12 designated provinces and cities.
The government hopes to have more than 200 million credit cards issued by year 2000. Conclusion The opening up of the economy and society and the rapidly rising purchasing power of the population have accelerated change in China at so fast a rate that the country is writing a new chapter in her history. China is experiencing a quantum leap in many facets of its people's life such as: Clothing: From military uniforms to Western suits. Food: From Chinese conger to hamburger.
Building: From tile houses to skyscrapers. Transportation: From bicycles to underground mass transmit. Office equipment: From abacus to PC, some using 486 or pentium. As China is rapidly transforming from a centralised planned economy to a market-oriented society, the "Xiao Kang" families or the Chinese Middle Class will continue to grow.
Their emergence and growth, initially concentrated in the cities, will gradually spread out to the towns and suburbs as the towns become more urbanized and as people become more mobile. The "Xiao Kang" livelihood supported by continued economic reform will continue to spread out from focal points of the cities to areas and regions, bringing prosperity to more and more people in this vast country. What does all this mean to us, marketers and professionals? I would just like to conclude by saying, "The rapidly changing lifestyle in China means there will be a huge market for modern consumer goods and services and therefore greater business opportunities for all of us.".