How Big is China’s Market? Experts Disagree – UPDATED

Monday, May 5, 2008 10:45

One of the things I love about China, is that “China experts” can have worked in the same city, assisted largely the same firms, be roughly of the same intelligence.. and yet disagree on things that one would think were fundamental.

The first time I witnessed this in China (keep in mind I used to watch a lot of CNBC), was at an AMCHAM where you had three economists debate what was going to happen with the RMB.. and just how undervalued it was.

The next experience I had was when I moderated a panel on real estate in Shanghai (a pretty well discussed topic you would think), and the differences between investors, economists, and agent expectations was fascinating.

more recently though, it has been over the topic of China’s market size, and more specifically the size of China’s middle class. Type it into google, and you get a pretty decent range of opinions… 57 million … 10o million… 200 million.. and so on.

One of the most vocal critics of the big 200 and above numbers is the well known Paul French, and it is he who for a while stood out from the crowd and said that China’s middle class is not as large as others would say.. and it is definitely not in the 200 million range

And when I saw the recent Youtube (h/t Danwei)of Paul French taking shots at JWT’s Tom Doctroff – also considered to be very well versed in China, I realized that the fight was spilling out into the street… one Old China hand against another!

[youtube width=”425″ height=”335″]http://www.youtube.com/watch?v=-zRSWKUnj2g[/youtube]

Like Thomas Crampton, I too would like to hear Tom’s reply to this. for me, I know each equally well, which is to say that I have seen both of them present and heard good things about both. My view on the middle class is that (1) you cannot trust any statistic (2) you cannot base your numbers on luxury sales and (3) it is surely more fragile than anyone would like to admit.

UPDATEDoctoroff Responds to French

Just received the link about from Tom, and GAME ON!

Doctoroff comes out on the defense on a few points, which if I were only watching French’s video I wuld accept as reasonable, and then addresses the issue of Crow vs. Doctroff – who was the pioneer

arl Crow was man of ahead of his time — yes, he was a “pioneer” and blessed with extraordinary insight and observational skill. However, he did not see “everything.”

The world has changed just a bit in 75 years.

He did not see a middle class boasting 150 million people and an auto market with 6 million passenger cars sold per year. He did not see a mass market — now penetrating the rural fringe — snapping up mobile phones and using them to transform their lives. He did not see multinational corporations setting up R&D centers and manufacturing scale on the mainland. He did not see that extraordinary release of energy that resulted from the embrace of capital markets.

For anyone to assume that “everything” has been seen before discredits that extraordinary genius of the Chinese people and their ability to adapt to an evolving world without sacrificing their enduring cultural orientation.

It also denigrates the efforts of, yes, expatriate businessmen who, while far from perfect and certainly not always noble, have done their part to make China a more dynamic place as the 21st century unfolds.

And I cannot disagree with that. China has changed a lot in 75 years, and I am not sure anyone saw China changing this much.

Where this is interesting (on the whole), as I mentioned again is that both Paul and Tom are old China hands who have made solid reputations on their work in China. they have a very interesting divergence of opinions, and I think that if oyu look at their work and who their clients are, it is pretty easy to see that their opinions come from having very different experiences here.

Many in Advertising need to make people believe that there are 150, 200, 300 million middle class.. otherwise selling cleints is more difficult, but any sinister motive aside, what the core issue is is that each person (Tom, Paul, Myself, etc) all have different measures for middle class, and that will skew our numbers/ perspective.

In one case recently, I was speaking to a resident of Suzhou who was happy to have recently just purchased an apartment for he and his wife (middle class step), but was very down about the fact that he could not afford much furniture and would not be able to afford his honeymoon. so, while some would say he was middle class because he had an apartment, others might look at the fact that he is really a subprime victim in the making.

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4 Responses to “How Big is China’s Market? Experts Disagree – UPDATED”

  1. China Law Blog says:

    May 5th, 2008 at 2:42 pm

    I have always loved the question as to how big China’s middle class is, but have also always realized there is no answer. First question, is how will it be defined? Second question, once defined, how does one come up with the numbers? There is no really good way to achieve the second so there is no really good way to get a number. I have always liked the idea of linking it to some asset, as opposed to some income, because typically asset figures are more relii=able than income figures. I once talked about linking it to cell phone ownership and people criticized me by pointing out that many people own more than one cell phone (very true, but that can be somewhat calculated out) and by claiming that many people who own a cell phone are not middle class. To which I say that if you define someone as middle class for owning a cell phone, then those who own cell phones are middle class. Realizing that many who own cell phones in China do not have huge amounts of disposable income, I still think that it is fair to say that anyone who owns a cell phone is almost certainly not living in abject poverty and there is an argument to be made that those not living in poverty are middle class, at least of a sort. Anyway, these discussions can go on forever, which is why they are so much fun.

  2. Thomas Crampton says:

    May 5th, 2008 at 10:05 pm

    Please add a link to Doctoroff’s reply to French. I think it is only fair for him to have space:

    http://www.thomascrampton.com/media/tom-doctoroff-china-billions-advertising-shanghai/

  3. Charles Frith says:

    May 5th, 2008 at 10:16 pm

    Similar debates on the definition of middle class go on in India and I had exactly the same questions on the definition of ‘middle class’ while working on a project.

  4. Rich says:

    May 6th, 2008 at 9:28 am

    Dan/ Charles

    to answer/ address both of your comments, one of the things that I keep thinking about on the middle class debate is just how much is real personal wealth (i.e. college grad gets good job, saves money, gets married, gets the house, etc) and how much is a result of the 6 to 1 funneling of funds.

    the US has cored out its middle class through debt, and I would say that the only difference between middle and lower class for some was their credit history and availability of easy credit. From the outside, they appeared to have everything… but once you saw the 86 Chevy Nova parked in the garage of a 7,000 ft house, you knew it wasn’t real.

    In China, institutional credit has yet to rally take hold at every level like in the States, but I see the 6 to 1 funnel being a different form, and offering a different subprime risk… and that leads me into the following stream

    In the US, a reasonable person could see that the trajectory of the economy could not be sustained and that people were going to end up, upside down.

    Likewise, in China we all know that the 6-to-1 is going to flip over.

    So… how does that fit into Doctroff and French’s line? and is this something that P%G, Nokia, Nike, & others have prepared for?

    R

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