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Asia’s growing middle class set to benefit world
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Despite recent economic uncertainty, Asia’s middle class is growing fast.
The OECD estimates that the global middle class (defined as households with daily expenditures of US$10-100 per person, in 2005 purchasing power parity terms) will swell to 4.9 billion people by 2030, from 1.8 billion in 2009. Two-thirds are expected to reside in Asia, up from 28 percent in 2009, with China home to the largest share.
Indeed, if China pursues the structural reforms and technological upgrading needed to maintain rapid economic growth, its middle class should exceed one billion people in 2030, up from 157 million in 2009.
The rapid emergence of Asia’s middle class will bring far-reaching economic change, creating new market opportunities for domestic and international companies. Already, demand for consumer durables has increased in the region, with China becoming the world’s largest market for automobiles and mobile phones.
But there remains substantial room for more consumption in luxury goods and technological products, as the purchasing power of the developing world’s middle class catches up to that in the advanced countries.
This convergence will contribute to more sustainable economic growth, with Asia’s economies rebalancing toward domestic demand, especially household consumption, and thereby becoming less vulnerable to external shocks.
Given the decline in export demand since the global economic crisis, this shift could not be timelier. And the benefits will not be confined to Asia; as imports to the region increase, global trade imbalances will decline, improving the sustainability of economic growth worldwide.
Consumption powerhouse
Indeed, Asia’s growing middle class will transform a region known as a global manufacturing hub into a consumption powerhouse.
With rising prosperity comes improved education and health care, which promise to help drive long-term economic growth by improving productivity. In China, this would represent a shift from prevailing conditions, in which the children of poor households lag in terms of nutrition and school enrollment, despite progress in recent decades on lowering infant mortality and raising educational attainment.
Equipped with high-quality education, Asia’s rising middle class will demand higher-quality public services. Increased confidence in their country’s institutional structures, enhanced by improved perceptions of upward mobility, will help to strengthen the rule of law. And there will be more opportunities for women to learn and work, leading to greater gender equality.
Given the benefits of having a large middle class, Asian countries should be nurturing theirs by improving health care, upgrading infrastructure, investing in universities and technical training, and addressing income and educational disparities.
Moreover, social safety nets should be strengthened to help safeguard the middle class from negative shocks and boost consumption growth (which continues to be hampered by precautionary saving).
Public policies aimed at strengthening the rule of law, promoting trade, and achieving sound macroeconomic management are essential to sustain growth, thereby ensuring the upward mobility of lower-income families. That upward mobility is the key to keeping in motion a virtuous circle of middle-class expansion and economic growth.
Lee Jong-Wha, Professor of Economics and Director of the Asiatic Research Institute at Korea University, was a senior adviser for international economic affairs to former President Lee Myung-bak of South Korea. Copyright: Project Syndicate. Shanghai Daily condensed the article.
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