The time to capitalise on the surging numbers of newly-affluent Chinese households is now, according to global investment research firm Gavekal Dragonomics.

In a recent paper The Glory days for Affluent Consumers, authors Ernan Cui, Thomas Gatley and Andrew Batson say the pattern of Chinese consumer spending is changing once again.

After years of fast growth, some products are now fading while others are booming: soft drink sales might be slowing, but fresh coffee sales are rising 20 per cent annually.

Their model shows that the acceleration phenomenon in China is currently at its peak for what they define as "affluent" consumers. Such households are now driving explosive growth in things like in foreign travel, SUVs, and health food -- growth which could last until 2018 or so.


For more mass-market purchases like basic sedans, domestic travel, and many consumer appliances, the acceleration phenomenon has already ended, and as a result they are converging on slower growth rates.

The authors say the propensity to spend on some goods does not rise smoothly with income but moves in steps.

Households above a certain income threshold are more likely, for instance to buy a car than households just below it. This step change in consumption is what generates the acceleration phenomenon.

Gavekal distinguishes three types of consumers: Households earning more thanRMB54,000, (NZ$11,177.43) a year qualify as "emerging" consumers; at this income level they start to purchase basic conveniences such as white goods.

Once a household earns more than RMB89,000 (NZ$18,422.06) year, it enters the "established" consumer category, where purchases of cars, branded consumer goods, and packaged food and drinks pick up. At RMB136,000 (NZ$28,150.56) a year in income, households qualify as "affluent" consumers, and spending on travel, recreation, higher-end goods, and services takes off.

The authors estimated that in 2015 there were roughly 86 million emerging consumer households, 62 million established consumer households and 82 million affluent consumer households. A further 228 million households, mostly in rural areas fall below these thresholds and thus do not participate much in the modern consumer economy.

In China's more affluent future, super-fast sales growth will be more driven by fashion, changing tastes, and the introduction of new products.

In the central scenario of a moderate GDP growth slowdown, by 2020 emerging consumers would make up 95 million households, established consumers 69 million and affluent consumers 137 million.

Affluent consumers are the fastest-growing group of Chinese households. In any scenario, even very low GDP growth would lead to only a slightly smaller future affluent population.


The authors' model shows this boom period for affluent consumers is probably now at its peak, though it will last for a few more years before it fades.

They say this does not mean that the affluent consumer market will retreat into irrelevance -- far from it. From around 2022, affluent consumers will be the largest category of Chinese households, and will effectively become the mainstream of nationwide consumption. This group of modern, sophisticated consumers will continue to grow, as will their average income and purchasing power.

In China's more affluent future, super-fast sales growth will be more driven by fashion, changing tastes, and the introduction of new products.