By Matthew O’Brien, The Atlantic,
After 30 years of catchup growth, consumers around the world are starting to look more and more American.
Emerging market consumers—they’re becoming just like us!
They’re earning more. They’re spending more. And they’re spending more on the same things we do. The same gear, the same gadgets, and, particularly in China, the same luxury goods.
It’s the best news our beleaguered global economy has gotten in a while. For too long, the world has relied on Americans to be the consumers of last resort, to keep buying no matter how much debt it took. That worked until it didn’t in 2008. But a world where hundreds of millions of Chinese, Indian, and Brazilian families are entering the global middle class—and spending like it—is one where growth could theoretically be more stable. A new report from Credit Suisse shows us just how this world is emerging, and what it means for all of us. Here are the big takeaways.
1. It’s easy to be seduced by an acronym. Especially when a Goldman Sachs economist comes up with one that seems to explain the world. But the term BRICs—short for Brazil, Russia, India, and China—doesn’t tell us too much about the rise of emerging market consumers. Sure, rich Brazilians are buying up Miami real estate, Russian oligarchs are doing the same in London, and Indian billionaires have turned Mumbai into their personal playground. But when it comes to broader-based prosperity, there’s China, and then there’s every other emerging market.
As you can see in the chart below, China has about as many people earning $1,000 or more, adjusted for local prices, as Brazil, Russia, India, Indonesia, Mexico, Saudi Arabia, South Africa, and Turkey combined. It’s not just that China has more people. It’s that it started catching up first, and has been catching up faster. So when we talk about “emerging market consumers” we’re really talking about Chinese consumers. BRICs is about three letters too long.
2. China’s hypergrowth has flipped its society upside down. The new generation has had more education, and more opportunities to work outside the factories. So, unlike in the U.S. where 40-and-50-year-olds make the most, it’s the youngest people in China who have the highest incomes. And not only do they have more money, but they’re more willing to spend it, too. They’ve only known a China with rapidly rising standards of living, and they want to live like young people do everywhere else.
3. In other words, they want to buy smartphones! That, more than anything else, is what people across all the emerging markets plan to buy in the next year, with richer countries like Saudi Arabia more likely to do so. Not to go all Tom Friedman on you, but it really is remarkable how much of a quiet revolution that is. It took desktop computers decades to move from the developed to the developing world. It’s taking pocket computers a few years.
5. Chinese consumers, though, still don’t consume all that much. They save an incredible amount. As you can see below, their household savings rate—about 32 percent—dwarfs anything else in the developing (or, for that matter, developed) world. And it’s not clear why. One theory is its massive gender imbalance, the result of decades of sex selective abortions, has made families with boys save as much as they can to attract the best wives for their sons. Another is that its meager safety net means families have to save more for retirement. And part of that is historical memory: older generations remember what it was like when things like meat were a once-a-year luxury, and nothing can get them to stop squirreling away as much money as they can, just in case. This over-50 crowd doesn’t make as much as the under-30s, but one-child means that there are more of them—so their super-saving predominates.
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