By V Romeschchandra, Asian Conversations
No longer mere low-cost production centres, China and India are leading the Asian buying spree. Say hello to a new giant, the Asian consumer.
The growing march of the Asian consumer – led by behemoths China and India – is going to change the global balance of power and corporate interactions.
There is a new megatrend in the global economy. It is the rise of the Asian consumer, particularly in China and India, but also elsewhere in the region. It is a story that could play out over at least half a century and promises to have as dramatic an impact on the world as the rise of the American consumer in the post-war era of the 1950s. It will have huge implications – for companies (both within Asia as well as foreign multinationals), for investors and for governments, not to mention the consumers themselves.
The key to the Asian consumer story is the rise of the middle class. According to a seminal study by economist Homi Kharas for the OECD published in 2010, if we define a global middle class as those living in households with daily per capita incomes ranging from US$10 to $100 per day in purchasing power parity terms, Asia accounts for 28 percent of the world’s middle class today in terms of numbers of people. By 2020, that share could double. And by 2030, two thirds of the world’s middle class will be in Asia.
The rise of the Asian consumer spells huge opportunities for companies. Some economies, India’s and China’s in particular, already have extremely strong local companies in a range of consumer goods industries, especially in markets for non-luxury goods. Several multinationals are also deeply entrenched in these markets, including Colgate, Coca-Cola, Pepsico, Procter and Gamble, Unilever and Nestle.
Economists speculate that there will be increasing scope for mergers and acquisitions in these non-luxury goods industries, with big players buying out entrenched local brands to expand their product lines in growing markets.
The biggest part of the story is China. The country’s leadership is aware – and is constantly reminded by the rest of the world – that its consumption has nowhere near kept pace with its growth over the last three decades. The government is trying to rebalance the economy, with a view to boosting consumption, reducing the reliance on exports and dealing with rising income and regional inequalities.
Plenty can still happen to prevent Asia’s consumption story from taking off as optimists project. China faces many dangers: runaway inflation, a possible banking crisis arising from extravagant lending and a possible bursting of asset bubbles, and social unrest. Long-established savings habits will also be slow to change. India, for its part, is fiscally too constrained to dramatically increase social sector spending which it needs to do.
The possibility of the return of global crises – a spiralling of Europe’s sovereign debt crisis for instance – cannot be ruled out either. All of these will slow down the ability of Asian governments to put in place measures that accelerate domestic consumption growth.
However, no matter what, the broad contours of Asia’s consumption boom are intact; it can be delayed, but it cannot be stopped. And it will change the world.