According to Britain-based investment and financial services company HSBC, China will more than double its number of millionaires in the next five years and boost the size of the middle class by almost half, increasing consumption in the economy.
The number of wealthy individuals, those with the equivalent of at least $1.55 million in investable assets, is likely to increase to 5 million by 2025 from more than 2 million now, the bank estimated. The middle class, which numbers about 340 million based on the narrowest definition, will grow by more than 45 percent to more than 500 million in the period, it said.
“An expanding middle class will underpin medium to long term economic growth, and stronger consumer spending boosts domestic demand, business confidence and capital expenditure. A rising middle class will also increase imports of goods and services, and attract foreign companies to invest in China,” HSBC economists led by Qu Hongbin said.
The expanding wealth will help China avoid falling into the “middle income trap” and aid the government’s efforts to make the economy more consumption-led, the economists said. “It’s not an exaggeration to say that the middle class can be the backbone of China’s dual circulation strategy,” they said.
Household wealth is likely to rise about 8.5 percent every year over the next five years, with investable assets reaching about 300 percent of China’s GDP in 2020.
A larger middle class with higher income levels would mean rising demand for quality goods and services. China will see its consumption increase by about $1.1 trillion a year for every $20 increase in daily spending by the newly made middle class, the bank estimates. That would make the total middle class expenditure the eighth largest in 2020 terms.
However, as the country grows richer, the wealth gap in China is also widening, the bank said, with the top 1 percent of households owning 30 percent of China’s wealth. More effort is needed to reduce income equality and help more people join the middle class, such as migrant workers and new university graduates, HSBC said.