As many Western economies slow, Asia is fast becoming the world’s most powerful spending force.
Within the next 15 years, the continent is expected to possess around half of the world’s purchasing power – and this is due to a rapid increase in the rise of the continent’s middle class.
The term middle class is widely agreed to mean families that are within the middle-income bracket for their countries – sitting above the poverty line, but below what is considered to be a wealthy elite.
The growth of Asia’s middle class has grown dramatically in the past two decades and this is being driven largely by a few key markets on the continent. There is, of course, China, which has the largest number of middle class people on the continent; there are those with the largest proportion of middles class by share of their individual populations – Azerbaijan, Malaysia, Thailand, Kazakhstan and Georgia – and there are the fastest growers, like the Philippines.
As incomes have grown in these countries, expenditure has surged, which is leading to sustained economic growth for many Asian countries. China, for example, has seen a massive 80% increase in the amount of its population considered middle class since 1990.
By 2030, Asia will represent 66% of the global middle class (Asian Development Bank, 2015:). This will mean more than one billion consumers with disposable income – a fact that international companies and marketers cannot afford to ignore.
For simplicity’s sake, let’s take a look at two key markets and how they represent two trends that are driving middle-class growth in Asia; there’s China, which is the continent’s powerhouse; and there’s the Philippines, which represents a rapidly emerging market, rising from the depths of extreme poverty to become a major South Asian influence.
China: a force that continues to grow
The rapid growth of China’s middle class has led to huge economic change and the transformation of many lives across the country – and this is expected to keep on moving in the same direction in the years to come.
Recent research by McKinsey found that, by 2022, more than 75% of urban dwellers in China will earn between $9,000 and $34,000 per year – which is considered to be a middle class income (to put that into perspective, this is equivalent to average income levels in Italy in Europe). Just 4% of households earned this amount in 2000 – rising to 68% by 2012.
This rapid increase is being fuelled by new government policies that have focused on pushing up wages in the labour market and initiating financial reforms to stimulate growth further.
Perhaps the most significant trend in China is now the rise of the “upper” middle class. The middle classes have now been expanding in China for quite some time and, while more people continue to join the bottom end of the middle class spectrum, those previously in the middle are now moving to the top. And it is this top few percent that is expected to be the drivers of consumer spending over the next ten years.
These consumers are considered trend-setters, and other middle classes are aspiring to their global-mindedness and their ability to afford goods considered “luxury” and international.
These power spenders are those that want to pay a premium for superior goods that are not needed – but simply desired. This is why China has seen a rise in its luxury goods market – and that includes international designer clothing brands from Europe and America – at a rate of around 10% last year.
It is expected that, by 2022, this upper middle class will account for more than half of the urban population – overtaking the mass middle.
These upper middle classes are the ones that are most likely to buy goods such as laptops, smart devices, specialised home equipment, and are now driven by the younger generation, which are expected to be almost three times as populous as baby boomers in the next decade.
Philippines: on the ascendancy
The Philippines is another of the main and most exciting emerging markets driving Asia’s overall middle class growth. In Q2 of 2016, its economy grew by more than 7% year on year, which is among the fastest of the big five Southeast Asian economies.
The number of middle class households in the Philippines is set to increase by 41.8% between 2015 and 2030, bringing the total up to more than 8.4 million. This impressive forecast actually puts the Philippines within the top 10 countries in the world for the countries with the fastest rates of middle class growth between that 15 year period.
The Philippines is a completely different market to China and brings with it a completely different set of trends. Until very recently, a huge proportion of the country’s population lived in absolute poverty.
But now, thanks to several large global companies seeing the Philippines as a cost-effective outsourcing location, industries such as call centres are rapidly growing and offering many people a decent wage with European benefit packages – for the first time.
Among other factors, this is leading to stable economic growth and a more even distribution of income.
Increasing opportunities for all
Many young, educated professionals grew up with absent parents who were forced to work abroad in order to support their families. But today, these young adults are being given the chance to turn that trend around and work in their own country for a bread-winning wage that often supports large families.
For the first time, these young singles and families are experiencing what it’s like to open savings accounts, plan for their children’s higher education and buy little pieces of luxury like consumer technology and branded clothes. And, as Asian people grow richer, more international brands are entering shop shelves.
The median disposable income is set to rise to almost $11,500 for a household by 2030, which equals a 90% gain from disposable incomes of 2014. Currently, one industry experiencing significant growth thanks to new middle income consumers is automotive, as people flock to buy new necessities like cars for the first time.
And, as people continue to get wealthier, the sectors set to see the most increase from Filipino spending are likely to be leisure and recreation, education, health and beauty goods and medical services.
Still a long way to go
The middle class is expected to gain influence, particularly over a very small but powerful corrupt elite. As this group of people grows and develops new expectations, they will start to demand better services and we will slowly start to see a better standard of living seeping downwards towards those still living in poverty.
And with one in four people still living in absolute poverty, there is still a long way for the country to grow – but with that journey will come many exciting changes and opportunities for brands around the world.
This article is part 2 in a series of 5 articles covering advertising and media in Asia
Part 3 Creative agencies in Asia – A background
Part 4 Media consumption trends in Asia
Part 5 International brands that have won the hearts of Asian consumers
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