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The Meteoric Rise of China's Middle Class

Despite some worries lately, the burgeoning middle class in China is a force to be reckoned with on the global stage. In the short time since Deng Xiaoping’s economic reforms, China has become home to the largest middles class on Earth, with over 225 million households now in this category.

These households reflect a dramatic change from the five million households that represented the demographic just 17 years ago. According to The Economist, the current criterion for those within the middle class involves earning between $11,500 and $43,000 a year in current U.S. dollars, a metric that should be kept in context with China’s lower cost of living.

This growth has led to a major shift in quality of life within China. According to a research paper presented at an international conference on sustainable development in 2005, China managed to reduce the proportion of the population in sever poverty from 250 million to 26 million between 1978 and 2004. This, coupled with the aforementioned boost in middle class citizens, reflects the fact that Chinese people are experiencing a kind of financial stabilization that to many was otherwise unthinkable in the past.

From the opening of the first McDonald’s MCD in Beijing in 1991 to now, the rise of consumerism in China has dramatically altered the way people choose to spend their money (also read: Globalization and the Shift in Chinese Consumerism). According to research by Global X, the issuers of the China Consumer ETF CHIQ, Chinese GDP growth is expected to be propelled largely by consumption in the years to come.

In 2014 alone, the annual per capita income rate of households grew by 9.4%. Smaller cities in China are becoming more urbanized, and the Urbanization Plan under the 13th Five-Year Plan is now targeting 60% national urbanization by 2020.

Newer generations in China that have lived under better economic standards are more confident about personal income growth, and are more loyal to brand names; they are also less hesitant to try new products and services. Retail sales have grown every year since 2005, a trend that will likely continue in the years to come. As of the latest reports, retail sales rose 10.7% year-over-year in May.

For a look at more investment opportunities in China, check out this special edition of the Zacks Friday Finish Line, where hosts Ryan McQueeney and Maddy Johnson are joined by Brendan Ahern, the Chief Investment Officer of KraneShares. KraneShares is a leading provider of China-focused ETFs and Chinese investment education.

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