China's Middle Class: The New Global Travelers By Diane Merlino / June 25, 2013 Share 1 -- Helen Wang has a unique perspective on how the dreams, desires, and buying patterns of China’s rapidly growing middle class are transforming the global economy. Born in China and a U.S. resident for the last two decades, Wang consulted for Fortune 500 companies including Apple Computer, Oracle, and Bank of America as part of the Institute for the Future think tank following completion of her master’s degree at Stanford University. She then became an entrepreneur in Silicon Valley, focusing on Internet start-ups, and returned to Stanford University as a Reuters Fellow developing technology solutions for underserved communities. Wang is head of The Helen Wang Group, a strategic consulting firm for companies doing business in China, and author of the award-winning The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You(CreateSpace Independent Publishing, 2012). The Chinese middle class — currently estimated at 450 million strong and projected to grow to 800 million by 2025 — is a demographic many companies are avidly courting. Understanding the market, says Wang, is crucial to success. “The Chinese middle class is generally younger than the middle class in the West, anywhere between 20 to 50 years,” Wang told Travel Weekly PLUS. “Most of them are college-educated and have relatively stable jobs. A lot of them are entrepreneurs or white-collar workers in state companies, foreign multinationals, and some private Chinese companies. They're all concentrated in urban areas in China. Government officials are also considered middle class in China. They have very high status and strong social connections.” This is the first excerpt from a dialogue between Wang and Travel Weekly PLUS Editor in Chief Diane Merlino about what U.S. travel providers need to know about China’s middle class. Merlino: How do you define the Chinese middle class?Wang: Chinese middle class households earn between $10,000 and $60,000 a year, but those figures can be misleading because the cost of living in China is very different from what it is the West. In the U.S. you can’t even get by on $10,000, but in China $10,000 is the beginning of having a lot of purchasing power in certain areas, especially in smaller cities. In Shanghai, the cost of living is quite high; that's why there is that range in income.So, the rule of thumb I use is a family is considered middle class in China if the household has a third of its income available for discretionary spending.Merlino: Give us an idea of the size of the Chinese middle class and the growth rate of that demographic.Wang: Five years ago, when my book first came out, the Chinese middle class was estimated at 250 million to 300 million people. Today, the middle class has reached an estimated 450 million people, and we’re projected to reach 800 million middle-class Chinese by 2025. Merlino: You've written a lot about the Chinese dream and how it might be different from the American dream, particularly given the cultural orientation toward collectivism in Asian cultures versus the emphasis on individualism in the West. Wang: If you are talking about the general Chinese dream, they very much want the same things we want: They want to have better life, and they want their children to have an even better life. A lot of people I talk to in China connect their own personal lives with a larger identity — “If the country is getting better and better, we're also getting better.” They always associate their own dreams with national interests. It’s a little bit different with American individualism. In America, it's all about your personal aspirations. That focus has also become quite strong among younger Chinese, but in general, Chinese have a collective identity. They identify their future with the future of the country. That’s the difference. Merlino: Does it also go in the other direction, Helen? If I am becoming more successful, then my country is becoming more successful? Or is it more a belief that as my country is more successful, I will become more successful?Wang: It’s more if my country becomes more successful, I will benefit, I will become more successful. It’s more that way and less the other way around, although I’ve started to see young people become more individualistic in their discussions on the Web. They are saying, "If I do well, the country will automatically do well. The most important thing is me.”Merlino: You’ve said that a quintessential trait of the Chinese consumer is that they're value seekers. How does the focus on seeking value translate into buying behavior? And how does it apply to the Chinese travel consumer?Wang: The Chinese are very price-sensitive. They always look for the best deal, the best value, and that means they spend a lot of time comparing prices, searching for the best airfare or the best deal on a hotel. There are a few exceptions. If they want to project their social status they are willing to pay premium prices on luxury goods. Other than that, they really like to bargain and look for the best value. Their ultimate concern is whether they get a good deal. Merlino: How important is travel to the Chinese middle class? Wang: A lot of Chinese have a desire to travel because China was closed 30 or 40 years ago. Very few people traveled during that time, but now that China is opening travel, to go see the world is a life goal for a lot of people. The younger generation, those in their 20s and 30s, are traveling a lot. If they have less money, they travel within China, but now when I travel around the world I see so many younger Chinese. It’s amazing. Merlino: What preferences or characteristics of Chinese travelers should U.S.-based travel companies interested in securing their business be aware of? Wang: A lot of Chinese prefer to travel with friends or in groups. Five years ago, I started to see a lot of Chinese traveling overseas. I saw them when I was in Egypt and then in Italy. But I almost never saw them in my hotels — a Sheraton or a Westin. Now I know one characteristic of the Chinese is that they seek value. They want to travel to see the world, they want to buy some luxury goods to bring back and show their friends, but they will stay in a very economical hotel or less expensive hotels when they travel because that part of indulging is less important for them. But this is changing very quickly. I’ve recently started to see Chinese travelers in Westin resorts, younger people in their early 30s. So they are moving up the ladder very quickly. Not only are they traveling to see the world and bring back some luxury goods to show off, but they are also starting to enjoy staying in these relatively high-end hotels.Merlino: You mentioned buying luxury goods. Is high-end shopping a big part of the experience for Chinese travelers?Wang: Yes, and they are buying a lot more luxury goods overseas than ever before. I just saw somewhere that Chinese travelers spent over $100 billion buying products to bring back to China. Definitely shopping is real big.Merlino: Why is shopping such a big part of the Chinese travel experience?Wang: Part of it is that tourism is relatively new, and all of a sudden they have a lot of access to material goods, a lot of choices. Part of it is also to show they are doing well. They feel good about that, and they want to show the world, show their friends and family, “I'm moving up. I can afford this. I can afford that.” They see consuming luxury goods as a quality of life. Merlino: You mentioned something I found very interesting — that emotional needs and individuality are beginning to factor into buying decisions by consumers who live in wealthier Chinese cities like Beijing and Shanghai. Wang: That's very new. So much happened in the past 10 years that people have become sophisticated very quickly. There’s a feeling of wanting to catch up and move up. As I said, five years ago I didn’t see any Chinese people staying in Sheratons, and now I see people staying in Westins. Things are happening so fast in China that people have to be very quick to adapt. COMING UP: How to cultivate brand loyalty with the Chinese middle-class traveler.