On a recent trip to China, I met with a number of wealth managers, investment funds and other finance professionals to confirm that the Chinese still had a strong desire to invest in U.S. real estate. The main takeaway of my trip was that not only did they still have a ferocious appetite, but that future investment was going to be driven by the booming middle class.
The economy of China is important for a number of reasons. It’s the second largest in the world, and when based on purchasing power parity, China’s GDP is actually the largest, followed by the U.S., India and Japan. Consequently, China’s economy has a huge effect on the rest of the world, touching everything from commodities demand to consumer consumption.
In 2015, total retail sales in China reached record highs, surpassing 30 trillion renminbi, or about $4.2 trillion USD. By 2020, sales are expected to climb to $6.4 trillion, a 50 percent increase in just five years. This growth will “roughly equal a market 1.3 times the size of Germany or the United Kingdom,” according to the World Economic Forum (WEF).
One of the main reasons for this consumption surge is the staggering expansion of the country’s middle class. In October, Credit Suisse reported that for the first time the size of China’s middle class had exceeded that of America’s middle class, 109 million to 92 million people. As incomes rise, so does demand for durable and luxury goods, vehicles, air travel, energy, investment products and more.
However, middle-income families aren’t the only ones growing in number. The WEF estimates that by 2020, upper-middle-income and affluent households will account for 30 percent of China’s urban households, up from only 7 percent in 2010.
With a current population of approximately 1.3 billion people, China and its booming middle class will continue to have a transformative impact on the global economy. It will be wise for those who position themselves and their companies to deliver much needed investment products and services for this insatiable demand.