ASIA BRIEFING:THE HEADLINES in the Asia story tend to linger on the swelling ranks of super-rich, while occasionally pausing on the still vast numbers of poor people. But Irish companies keen to make money in the continent should be looking somewhere in the middle.
Asia is predicted to add 2.5 billion people to the world’s middle classes in the next 20 years, and nowhere can you see this more easily than in China. “The Chinese middle class is growing rapidly and people have money to spend,” says Liam Casey, founder and chief executive of the international supply chain management company PCH.
“There is a phenomenal appetite for foreign brands in China and Irish companies should move quickly to sell products in this market,” says the Corkman, who has major operations in Shenzhen, Cork and the US.
The Chinese middle class is burgeoning – there are more than 300 million bourgeoisie and this could reach 75 per cent of the population by 2050. The middle class could be three times bigger than that of the US, and that within a generation. And while it sounds odd that a Marxist-Leninist group should be so reliant on the bourgeoisie it is supposed to abhor, the Communist Party finds that its key area of support is in middle class Chinese.
It needs the middle class to stay onside to remain in power, and much political reform and effort to stamp out corruption have been aimed at keeping the old class enemy sweet.
The emergence of this middle class has played its part in keeping the global economy on track in the past few years, as it allowed China to shift much of its badly damaged export market into domestic demand.
“What people may not realise is that domestic consumption is now driving the Chinese economy,” says Casey.
The yawning gap between the wealthy and poor is a concern for the central government, because it threatens social stability, and there is a push to boost the middle income group.
The swelling middle class is the reason that China is the world’s largest energy consumer, its biggest vehicle market and biggest user of mobile phones.
The societal shift has turned preconceptions upside down. “China used to be a place to make cheap products. Then it became a cheap place to make products. Now it’s the only place to make hi-tech products, and it’s quickly becoming the place to sell those products,” Casey says. “There will be an increased focus on selling services and products into the domestic market and this is where some of the biggest opportunities lie. Watch this space.”
These goods and services are often things that Ireland is good at providing. Agencies like Enterprise Ireland in China are concentrating on education services, engineering, design and project management, financial services and software, life sciences – all areas that feed into this growth sector.
Healthcare has been a strong sector for Irish companies, and recently China’s ministry of commerce opened up the country’s private healthcare sector, mostly in response to the major pressures on the state system and the demand for private healthcare among middle class Chinese. Under the old rules, foreign firms had to form a joint venture, and the foreign input was limited to 70 per cent. Now overseas companies can fully fund private healthcare services.
Once you move beyond the middle class, things get harder to predict. The luxury end of the market has potential. The Global Wealth Reportby Credit Suisse Research Institute, published last year, showed China's total wealth at €15 trillion, equivalent to the US in 1968. But that wealth is forecast to rise over 90 per cent to €29 trillion in the next five years. It took the US more than two decades to reach that level. That's a lot of potential consumers.
However, the wealthy are sensitive to slowdown. Signs that China’s economy is weakening might translate into lower sales of ultra-luxury sports cars. Lamborghini, maker of the €750,000 Aventador LP 700-4, believes sales could slow.
The typical buyer of a Lamborghini in China is on average 20 years younger than in Europe, the company says, a fact borne out by the vision of what looks like teenagers whizzing about the streets of Beijing and Shanghai in these cars.
Chinese customers have to wait at least 18 months before taking delivery of the Aventador, which has a 700hp V12 engine and can accelerate to 100 km/h in 2.9 seconds. Just the thing for the gridlock on the Third Ring Road in Beijing, then.
