The Rising Influence of Rising Affluence

[DewDiligence]

Alibaba IPO filing recites premise of this board:

http://www.nytimes.com/2014/05/08/technology/alibaba-bets-on-a-growing-chinese-economy-and-new-consumers.html

Instead of promising to disrupt an existing market, the Chinese e-commerce giant wants to do something far more straightforward, but potentially far more lucrative — insert itself at the center of a new, already expanding market being forged by powerful economic and cultural forces far beyond the company’s control. That new market is China itself, particularly its ascendant middle class and its growing appetite for spending rather than saving.

… “Our business benefits from the rising spending power of Chinese consumers,” the firm says in its [SEC] filing. The crux of Alibaba’s pitch to investors is that Chinese customers will begin to act much more like American customers. Today, much of the Chinese population doesn’t spend very much money compared with their counterparts in the West. Only about a third of China’s gross domestic product is made up of consumer spending, significantly lower than the consumption rate of other countries. By comparison, about two-thirds of the United States’ economy is made up of consumer spending.

…According to a recent report by McKinsey & Company, China’s middle class will continue to grow at a staggering pace well into the next decade. “The evolution of the middle class means that sophisticated and seasoned shoppers — those able and willing to pay a premium for quality and to consider discretionary goods and not just basic necessities — will soon emerge as the dominant force,” the report states.

The McKinsey researchers noted that in 2000, just 4 percent of urban Chinese households earned a middle-class wage. By 2022, the study predicted, more than 75 percent of urban households will have joined the ranks of the middle class, with income among that group twice as much as it is today.