China will be middle-income by 2030,with spending on cars, luxuries, health to rise

China on track to be middle-income society by 2030

China will become a middle-class society by 2030, based on income measures, new research suggests.

The world's number-two economy is currently at an early-to-middle stage of development in terms of per capita consumption, roughly at the level of Malaysia in the 2000s, the Economist Intelligence Unit (EIU) said in a new report on Wednesday.

But as the low-income proportion of population shrinks, around three-quarters of Chinese will likely be defined as "middle income" in 15 years' time, the report said.

Almost 40 percent of the population were in the low-income bracket—defined as having an annual personal disposable income below $2,100—last year, but that number will drop to 11 percent by 2030 as people move into lower middle-income status ($2,100-$10,800 a year).

Meanwhile, the upper middle-income group ($10,800-$32,100) will expand from 7.1 percent of the population in 2015 to 19.7 percent in 2030. And high-income individuals (above $32,100), representing 2.6 percent of the population in 2015, will comprise 14.5 percent in 2030, the fastest growth rate of all income categories.

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"In the past, China's economic growth depended on using the deep pockets of the state to finance investment. In the future, however, meeting the needs of a booming and more demanding middle-class group of consumers will be fundamental to economic sustainability," the report said.

Of course, the income ascent isn't expected to be easy.

"Wealth inequalities will persist and a failure to cater for those left behind could create social fissures," the EIU warned.

Shifting geographies

Understanding how changes in income will be distributed across China's geography is key for companies looking to capitalize on China's middle-class boom, the report flagged.

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High-income and upper middle-income consumers will remain clustered in urban areas, especially within first-tier cities such as Beijing, Guangzhou, Shanghai and Shenzhen.

"Over the next 15 years, the number of local residents with a disposable income per head of above 200,000 renminbi ($29,590) will double in each of these cities, with Shanghai crossing the 10 million mark (43.2 percent of its population)," according to the report.

Inland cities are also poised to show strong growth in high-income residents. The group's population in Chongqing will increase almost tenfold in the coming 15 years, with comparable gains in the interior provincial capitals of Chengdu, Xi'an and Changsha.

Some of China's richest cities will include Zhuhai in Guangdong province and Shaoxing in the Zhejiang region, where high earners will account for 36 percent and 26 percent of the local populations respectively by 2030.

Beneficial sectors

The majority of China's total consumption has historically centered on essential items such as food, beverages, clothing and footwear, the EIU explained. But going forward, higher spending is expected on cars, luxury goods, financial services and health, as average disposable income levels rise.

The EIU predicts only mild growth for necessary items "because market demand is mostly met."

There is also strong potential for growth in expenditure on transport and communications, with Chinese spending in this category currently below that of Malaysia when incomes in that country were at the same level.

"As consumers become richer, they will be more demanding for higher quality of goods and services," Dan Wang, the EIU's China analyst, told CNBC on Wednesday.

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