GPC in China--Does China Have a Middle Class?: 10 or 15 years ago, guys like the watermelon man in the photo to the right were much more common. Now they have to compete with more cars, buses, scooters, and even roller-bladers. China definitely looks different and by different I mean more prosperous. All of the young people wear jeans, which used to be too expensive, and almost everyone seems to have cellphone. But does that mean that China is growing a middle-class in the way we think of a middle-class? The answer, I'm finding, seems to be, "No." According to Arthur Kroeber of Dragonomics Research and editor of China Economic Review (see May 2007 issue), the growth that China has seen has resulted from a combination of foreign investment and exports. To sustain growth China needs its own people to become consumers. But when you look at incomes and living costs, what you find is that only about 125 million out of the total populations have significant disposable income. And they are limited by opportunity costs as well, for if they buy a car, it may be years before they can save enough money to buy anything else, such as a major appliance or computer. Also, these 125 million or so Chinese consumers are concentrated in 3 zones: Beijing-Tianjin, Guangzhou, and Shanghai-Hangzhou. Those three urban centers are as far apart from each other as some European capitals, creating real challenges for foreign companies that want to set up distribution centers to serve these far-flung cities. Estimates on how quicky China can grow a consumer class vary, with the most conservative suggesting a possible 300 million consumers by 2015. This week I had an interesting conversation with a bright young journalism major, let's call him "Itchy," who recently finished internships with both Xinhua News Agency in Beijing and the prestigious Wenhui Daily in Shanghai. Itchy also thinks that China doesn't have a true middle-class and he thinks it could be 50-100 years before it really gets one. Of course, these facts are not all bad for U.S. businesses and other foreign companies that want to do business in China. Such realities may burst our China bubble but prompt a more strategic focus on various trends and issues that shape emerging markets here. For example, financial services, is one area that seems to be doing well, with both Chinese banks and foreign banks, such as Citigroup, expanding their range of services as they try to discover niches that reflect consumer wants and needs. Fueling domestic spending through the availability cheap credit!--That sounds more like the American Way than Socialism with Chinese Characteristics, don't you think?!