There’s a fascinating quotation on the Wall Street Journal’s Real Time Report blog today about consumer spending in smaller Chinese cities.
Shaun Rein, the managing director of China Market Research Group, says that most of China’s growth is happening in Tier 3 cities such as Dalian, and that the biggest sector of growth is luxury.
Brands such as Louis Vuitton, Dior and Hermes are opening up in the unlikeliest of venues, from the coal-rich towns of the north, where I imagine a Vuitton bag would be smudged with grime in days from the pollution, to Harbin, where huge numbers of people were laid off from state-owned enterprises in the 90s and where even today you can see men standing by the side of the road with signs begging for work.
According to Rein, there’s a simple logic for the rapid expanse of these aspirational shops. "The concept of an emerging middle class in China is a myth," he said. "In the US, blue-collar workers are happy to shop at Macy’s [department store] for life. Here, everyone wants to be rich. It’s why middle-class brands like Marks & Spencer and Calvin Klein haven’t done well."
Leaving aside whether the companies he mentions have failed for other reasons, Rein’s idea is seductive. I agree that the concept of a middle-class in China is still very intangible. Instead, there appears to be a number of extremely wealthy people, the Louis Vuitton shoppers, and a lot of poor people (office workers and below).
And with the average salary in Shanghai at 3,000 yuan ($442) a month, clearly the average person is not going to be able to afford a middle-class store, such as M&S.
But when it comes to consumption being higher, relatively, in smaller cities, I’m not persuaded either. Again, some parts of the population may be keeping the designer boutiques of Dalian in business, but the majority will not be earning the sort of wages that are quoted in the WSJ piece.