Shanghai, China. (Photo credit: Wikipedia)
The current trade dispute between the United States and China isn’t the first and won’t be the last. This one involves auto parts. Earlier it was solar panels. Before that: rare earth minerals. Next it will be something else.
All of these disputes will be resolved in due course. They are important for many reasons. But none should cause us to lose sight of the promise China holds for U.S. companies, American workers, and the U.S. economy.
China can fuel economic growth in the United States for decades to come. U.S. companies that plant the flag early, learn Chinese consumers’ tastes, and are willing to go on the wild ride that lies ahead will win the prize. The opportunities in India are nearly as great.
Currently, U.S. sales in China are only $124 billion per year: less than Japan, Korea and Taiwan. Germany, with a much smaller economy than America’s, sells China some $92 billion in manufactured goods. If you go into a hotel in Shanghai or Beijing, the business travelers you see are just as likely to be Germans as Americans.
In the years ahead, the majority of China’s 1.3 billion people, including more than a billion upper- and middle-class consumers, could be customers for U.S. branded goods. Our research indicates that these consumers have their eyes on the same things generations of Americans have demanded: a nice home, one or more cars, modern appliances and conveniences, beautiful clothes, electronics, a good education for the kids, better health care, and more travel and leisure.
The math, which most Americans haven’t yet done, is startling.
We have calculated that between 2010 and 2020, the people of China and India will consume some $64 trillion in goods and services. Chinese consumers will spend approximately $41.5 trillion, with annual expenditures increasing from $2 trillion in 2010 to more than $6 trillion in 2020. Indians will spend $22.5 trillion, with annual spending rising from $991 million to $3.6 trillion.
In China, annual per-capita income is projected to rise, on average, from about $4,400 in 2010 to $12,300 in 2020; in India, it will increase from $1,500 to $4,400.
Combined, they will be spending some $10 trillion per year by 2020 – more than three times what they’re spending today. That’s the prize. That’s where we want to negotiate: access, preference, open markets.
Due to rising incomes and longer life expectancies, we estimate that Chinese children born in 2009 will likely consume approximately 38 times more than their grandparents during their lives; Indian babies will consume 13 times more than their forbears.
China’s upper-income bracket will nearly quadruple, from 24 million to 91 million households; its middle class will grow from 109 million to 202 million households. India’s upper-income bracket will increase from about nine million to 32 million households and its middle class from 63 million to 117 million households.
What these newly affluent consumers want is more and better – and now.
For more than a decade, we’ve been studying changes in consumer sentiment in the world’s most important economies. Our most recent findings show that 36 percent of Chinese consumers and 19 percent of Indians expect to increase their discretionary spending in the next year – compared to only 11 percent of Americans, 8 percent of Europeans, and 5 percent of Japanese.
Granted, forecasts presume stability and can be knocked off course by economic downturns, natural disasters, political unrest, and unchecked corruption. The road ahead may be rocky.
Chinese and Indian entrepreneurs and executives understand precisely what’s happening. They have witnessed tremendous new government investments in infrastructure; they see booming cities; they see hundreds of millions of new middle class consumers ready and eager to spend. As a result, they see boundless future opportunity. Some confidently predict that their businesses could grow by a factor of ten in the next ten years.
We believe U.S. companies could – and should – be growing with them. China shouldn’t be feared; it should be welcomed.
By the end of this decade, there will be a billion middle-class consumers in China and India. Their buying power could reenergize the U.S. economy. It’s time to embrace the possibilities, understand Chinese and Indian consumers, and market the American Dream to them.
Michael J. Silverstein is a senior partner of The Boston Consulting Group (BCG) and co-author, most recently, of The $10 Trillion Prize: Captivating the Newly Affluent in China and India (Harvard Business Review Press, October 2012).
http://www.forbes.com/sites/realspin/2012/10/11/stop-bashing-china-its-growth-will-make-the-u-s-very-wealthy/
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