BEIJING — There are five Starbucks coffee shops within an easy, 10-minute walk from my apartment in the central business district of China’s capital city. That may come as a surprise. But Starbucks has become as much a part of daily life in China’s major metropolises as it has in America.
Starbucks already has more than 3,000 stores in 136 cities in the Middle Kingdom. And with a new shop opening about every 15 hours in the country, Starbucks is targeting 5,000 outlets by 2021. China is so critical to the company’s future that it is bringing special offerings to the Chinese ahead of New Yorkers. In December, Starbucks opened a 30,000-square-foot Reserve Roastery in Shanghai, with a two-story roasting cask and the company’s longest coffee bar anywhere. Only its hometown of Seattle has a similar showpiece.
These shops are just one, small sign of what could well be the most important trend taking shape in the global economy today: The rise of the Asian consumer. The newly wealthy Asian family is becoming more important to the world than the American middle-class household. There is no underestimating what that shift means. It is reshaping the global economic order as we’ve known it.
The great economic expansion of the post-World War II era was fueled, to a significant extent, by the acquisitive American consumer. U.S. shoppers, flocking to their local malls, were coveted by companies from Ford to Sony to Samsung. The Gap jeans, Apple iPhones and Nike sneakers they purchased created the jobs that alleviated poverty in countries like South Korea and China and continue to help the poor today in Vietnam, Bangladesh and other countries. The American consumer was just plain indispensable to the global economy — and for the most part, irreplaceable.
Now, however, the American household is losing that stature. As incomes rise in once-poor, but rapidly growing developing economies, more and more families are joining the global middle class. And nowhere is that happening faster or with greater impact than in emerging Asia. According to a 2017 study by the Brookings Institution, 88 percent of the next 1 billion people to enter the middle class globally will be Asians. The size of the Asian middle class is expected to reach nearly 3.5 billion people, or 65 percent of the world’s total, by 2030, a dramatic increase from 1.4 billion in 2015.
China figures large in this transformation, but is not the only source of new Asian consumers. Brookings predicts that India will contribute 380 million people of the next 1 billion to reach the middle class — more than the contribution from China.
These Asian shoppers already play a critical role in the world economy. Brookings figures that in 2015, newly wealthy consumers in China and India already outspent their American counterparts, accounting for a combined 17 percent of consumption by the global middle class compared to 13 percent for the U.S. That gap will continue to widen. By 2030, the middle class in China and India will spend 39 percent of the global total; the U.S. will account for just 7 percent.
Such optimism about future prosperity was shown clearly in this year’s Best Countries survey.
This historic economic shift to the East can be felt across industries. India surpassed the U.S. as the world’s second-largest market for smartphones in the third quarter of 2017, according to research firm Canalys, (China already tops the rankings.) Aircraft manufacturer Boeing forecasts that two out of every five planes sold between 2017 and 2036 will be shipped to Asia, nearly double the amount bought in North America.
In many respects, the rise of the Asian consumer is good news. For the past six decades, global growth has been overly dependent on the U.S. — thus the old adage that if America sneezes, the world catches cold. But now the Asian consumer is creating an entirely new pillar of consumption to support the global economy. That’s a boon to companies, as well. Starbucks Chief Financial Officer Scott Maw recently noted that the company “now has two significant profit engines” — North America and Asia. In its last fiscal year, comparable sales in China rose 7 percent; those in the U.S., 3 percent.
Yet the growing importance of Asian consumers presents challenges to the U.S. as well. As the American mall rat loses clout in the global economy, so could America overall. That will only make Washington’s task of maintaining U.S. global power that much harder. China’s President Xi Jinping is already marketing his government as the new world leader in trade and globalization — a claim that gains weight with the size of the Chinese domestic market.
“China offers opportunities for companies in Southeast Asia to look at the China [DK1] ther than the U.S. market,” says Frederic Neumann, co-head of Asian economic research at HSBC. “It shifts bargaining power to China.”
The transition of power from West to East can be seen in changing patterns of trade and investment. In the past, when Asia was relatively poor, consumer products manufactured in Asian factories tended to get shipped out of the region, especially to the U.S. and Europe, where pocketbooks were fatter. Though that sort of exporting continues, Asians are also buying more and more from each other. In 2016, trade between countries in Asia as a share of their total rose over 57 percent, a record high, according to a recent study by the Asian Development Bank. Asian companies are becoming critical to investment in the region as well. Foreign direct investment between Asian economies reached $272 billion in 2016, 55 percent of the total amount to the region.
Washington could even lose sway over its own corporations. If customers in China or India are more critical to CEOs’ jobs than those in Iowa or Florida, they will have to make their businesses more local in all of these foreign markets — or lose out in fierce global competition.
“Globalization has untethered American companies from America,” says James McGregor, chairman of consulting firm APCO Worldwide for China. “The leaders of China and India are becoming more important to many American multinationals than the people in Washington.”
These U.S. companies are facing threats from the rising Asian consumer, as well. Traditionally, American companies like Apple or General Motors have been dominant in consumer sectors, but now Asian up-and-comers with a strong presence in their rapidly growing home markets are emerging as dangerous rivals. Research firm Strategy Analytics calculates that three of the five largest smartphone makers in the world are now Chinese (Huawei, OPPO and Xiaomi), with a combined global share of 25 percent in the third quarter of 2017 — twice that of Apple.
Still, the dominance of the Asian consumer is a future prospect, not present reality. Total consumption is still much larger in the U.S. than China, and that means the American consumer remains the world’s buyer of last resort. Even for a company like Starbucks, China has a long way to go to challenge the U.S. At the end of its last fiscal year, Starbucks had 13,930 stores in the U.S., a figure even fast-growing China will take quite some time to match.
Total Chinese consumer spending won’t overtake that of the U.S. until the early 2030s, says HSBC’s Neumann. “We’re about two-thirds of the way of the Chinese consumer replacing the U.S. consumer as the driver of global spending,” he says.
Nor, of course, is the ascent of the Asian consumer — like any economic outcome — inevitable. Emerging economies often stumble or stall, slowing or even reversing the income growth necessary to fund bigger shopping sprees. China right now is struggling with an historic buildup of debt that poses a grave risk to its economy. India has all too often failed to live up to its boundless potential.
But with India and China accounting for more than a third of the world’s population, it is far more likely that greater and greater heaps of the world’s stuff will be bought by Asians. Starbucks believes China will one day be home to more of its coffee shops than the U.S. Now that’s a lot of lattes.
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Asian Consumers Becoming Most Powerful Economic Force in World originally appeared on usnews.com
