Asia Sentinel, Written by John Berthelsen
Thursday, 19 August 2010
A new Asian Development Bank report exhaustively details the rise of the middle class
A decade after its emergence was forecast by investment bankers and
economists, Asia's middle class is finally starting to make itself felt,
according to a new report by the Asian Development Bank, and appears
increasingly likely to assume the traditional role of the United States
and Europe as primary global consumers who will help to rebalance the
The report, built on data from 22 countries across the region, was published as a special chapter
in Key Indicators for Asia and the Pacific 2010,
the ADB's annual statistical publication. Asia's consumers, according
to the 55-page special section, can be expected to spend US$32 trillion
annually by 2030, some 54 percent of worldwide consumer spending. China
now is famously the world's largest car market and India's the fastest
It is a class that is growing at astonishing speed.
While the emerging middle class made up only 23 percent of developing
Asia's population in 1990, it more than doubled to 56 percent in the 18
years to 2008, rising from 565 million in 1990 to 1.9 billion over the
period. China added more than 800 million people to the middle class
during the period, increasing aggregate annual middle-class spending by
more than $1.8 trillion. India followed, with 205 million joining the
middle class and US$256 billion in additional middle-class annual
expenditure. Aggregate annual expenditure/income increased more than
four-fold, from US$721 billion to US$3.3 trillion.
according to the report, they remain cautious spenders. For more than a
decade, as companies catering to the consumer have watched the growth of
Asia's middle class, they have vainly tried to figure out how to
separate them from their money. Saving rates remain very high all the
way across Asia. Per-capita middle-class spending varies greatly across
countries, with North America's legendary consumers accounting for 26
percent of global middle-class spending but only 18 percent of the
world's middle class. By contrast, Asia's middle class account for 28
percent of the global middle class but they only do 23 percent of middle
In large measure that is because across the
region, social safety nets, including social security and universal
health care, remain substandard, particularly in relation to the
Eurozone. In China's case, according to the report, the government could
use the large profits of state-owned enterprises to reduce labor taxes
and employment fees, and to accelerate banking reforms to ease access to
credit for small and medium enterprises (SMEs).
the report notes that since Asia's middle class consumers are poorer and
spend much less than their western counterparts, companies have had to
develop affordable new products and services. "This has spawned a great
deal of innovation in such varied areas as consumer goods, personal care
products, banking, insurance, health care products and services, and
information technology among Asian firms. This innovation in turn
boosted economic growth, setting off a virtuous cycle of growth,
consumption, innovation, and more growth."
The report also notes
that the yuan is "alleged to be undervalued relative to the US dollar,"
so that Chinese goods are cheap to foreigners and foreign goods are
artificially expensive to the Chinese, which ought to be music to
western policymakers' ears. The Americans in particular have for years
been jawboning the Chinese into changing their exchange rate policy,
largely without result.
Nonetheless, the report says, "as
developing Asia's people secure their middle-class status, its emerging
consumers are very much expected to become the next global consumers and
assume the traditional role of the US and European middle classes.
Moreover, given the call for "rebalancing" Asian economies from
export-led to domestic-led consumption growth—to reduce exposure to
negative shocks from regional economies outside of Asia—it is expected
that this process will depend highly on the emergence and expansion of
the Asian middle class. This can create more stable and efficient
poverty reduction and economic development."
The report uses an
absolute definition of middle-class per capita consumption of US$2 to
US$20 per day. And, the ADB's economists note, nearly 1.5 billion Asians
continue to live on less than US$2 per day. Moreover, two thirds of
those defined as middle class, in fact, are clustered around the lower
end of the scale, spending between US$2 to US$4 per day, "leaving them
highly vulnerable to slipping back into poverty due to economic shocks."
Despite that, the growth of the middle class and policies for
promoting it is important for the stabilization of society itself,
according to economic historians quoted by the ADB, pointing out that
societies with small middle classes are generally polarized and find it
difficult to reach consensus on economic issues. Societies with larger
middle classes are much less polarized and can more easily reach on a
broad range of issues and decisions relative to economic growth.
is thus vital for governments across the region to facilitate economic
growth by allowing society to agree on the provision of public goods
critical to economic development. These include goods such as public
education, public health services and physical infrastructure.
societies without a middle-class consensus, the elites tend to
underinvest in such goods and services for fear they will empower
opposing factions. There is probably no better example on the planet
than North Korea and Burma, although the ADB judiciously doesn't point
In India, the emergence of a middle class numbering
from 100 million to 250 million has drastically changed the country's
class structure from one with a small elite and an enormous impoverished
class to one dominated by a large intermediate class, the report notes.
With the emergence of so-called "have-somes" over the have-nots, the
middle class can provide the entrepreneurs who create employment and
productivity growth as well as foster a culture in which the values of
ac*****ulation of human capital through education and savings are critical
to economic growth.
Third, "with its willingness and ability to
pay extra for higher-quality products, the middle class drives demand
for high-quality consumer goods, the production of which typically
presents increasing returns to scale. This encourages firms to invest in
production and marketing, raising income levels for everyone."
five countries with the largest middle class by percentage of
population share are Azerbaijan, Malaysia, Thailand, Kazakhstan, and
Georgia. The five smallest are Bangladesh, Nepal, Laos, Uzbekistan and
India although in absolute size India's middle class dwarfs the other
countries in the region. Armenia, China and Vietnam have made the
greatest progress in increasing the population share of the middle
That isn't to say these rising incomes are an unalloyed
blessing. Environmental and ecological damage, rising obesity,
increasing chronic, non-communicable, middle-class diseases such as
diabetes, cardiovascular disease, and cancer, are all growing problems.
the average Indian uses only 40 percent of the water an average
American uses. Given the severe scarcity of water in many parts of the
region, the report notes, "there are potentially large consequences if
the average Chinese or Indian increases his or her water consumption to
the level of the American consumer, unless policies effectively balance
water pricing with inclusive and sustainable growth concerns."
carbon dioxide emissions per capita – considered to be the principal
factor in climate change – are dwarfed by those in the Eurozone and
North America, they are increasing at a much faster rate.
large part, the rising stress on the environment reflects a policy
failure," the report notes. "For instance, water subsidies to urban
consumers and to cultivators often result in overconsumption of water,
while fuel (diesel) subsidies in many countries exacerbate the problem
of greenhouse emissions; clearly, there is a strong role for policy to
help mitigate such environmental stresses, while facilitating adaptation
to climate changes."
The urban middle class has become more
sedentary as it comes to rely on motor transport, raising levels
obesity, which is also being brought about by dramatic changes in diet
toward foods rich in fat and low on fiber and micronutrients, driven
partly by the availability and pricing of processed foods. The rise in
obesity is closely connected to the rise in diabetes, with many Asian
countries facing epidemic levels. India and China now have the largest
absolute number of diabetics in the world, 51million and 43 million
respectively. The incidence of diabetes in Malaysia, Sri Lanka and South
Korea is now as large as in developed countries such as the US,
Germany, Canada and Spain. Cardiovascular deaths are only expected to
increase as incomes rise.