FIGURE 1-8
The distribution of income in China and India, 2010 and 2020
A third factor in the rise in the standard of living is that the Chinese and Indian governments are clearly focused on boosting domestic consumption. Both countries know that economic growth—and thereby social harmony—depends on driving demand at home. There is a tradeoff between current consumption and savings. Savings is one of the three drivers of national economic growth. The other two are labor force growth and labor force productivity. India has the potential to realize a triple, with strong performance in all three dimensions over the next decade.
The New Consumer Kings and Queens
The consumer is king, and China and India’s newly affluent consumers will take a commanding position in the domestic and global economy. They have the ambition, energy, and resourcefulness required to make it in China and India today—and over the course of the decade, they will move to new homes, buy an array of appliances, pay for better food, invest in their children’s education, and begin to travel in their own countries and beyond. It is a heady and uplifting time.
We interviewed hundreds of consumers in the course of our work, and we tell some of their stories throughout this book. The most important shared elements are these:
Humble origins
A drive to create a better life for themselves and their children
An animated and specific dream of the elements of a better life, often filled with material goods—including a home and a car—as well as great experiences through travel and leisure activities, and access to modern health care and education
We introduce many of these consumers in the book (figure 1-9). Two of them are Rakesh Kumar Sahu and Zhou Zhanghong.
Rakesh is thirty-nine years old and lives in Lucknow, the capital city of Uttar Pradesh, India’s most populous state, with more than two hundred million people. Rakesh started out as a snack seller with a handcart and earned only about 90,000 rupees (about $2,000) a year—barely enough to cover all of his necessities. Now, married and with a fourteen-year-old son, he owns and runs a small restaurant-cum-eating stall. Dark-skinned and quick to smile, he has a roundness that supports his belief that he is carrying an extra twenty pounds. It is a sign of his newfound wealth. His life over the past ten years has been, as he puts it, “a rocket.” He currently earns 450,000 rupees a year (about $10,000), which puts him firmly in the middle class in India.
His clients are the local businesspeople and tradesmen who pass by his stall. Primarily, he serves a regular set of customers, people who enjoy his trademark khasta puri, bada, and dahi bade (popular Indian fried snacks). As you go into his restaurant, the smell of onion, garlic, cumin, turmeric, lemon, curry, coriander, and coconut—among other distinct aromas—rushes at you. He makes all of his food fresh from locally sourced ingredients. The only exception is his Pepsi cooler.
Rakesh has prospered as Lucknow and Uttar Pradesh have prospered. In recent years, the state and its capital have enjoyed a significant measure of government investment in roads, buildings, and infrastructure. They still lag behind the rest of the country in education and health care, but things have improved over the last decade. The Mahatma Gandhi National Rural Employment Guarantee Act, enacted in 2005, has brought a minimum living standard to many people. The program guarantees jobs with a daily wage of about $2.60. In 2010, the government spent $8.1 billion on the program.5 Some of that money goes to Rakesh in the form of snack purchases by the poor workers in Lucknow.
FIGURE 1-9
Major Chinese and Indian characters in the book
Confident and ambitious, Rakesh cuts the air with his hands to make a point, and his sentences come out rapid-fire. “Earlier, I had nothing. Today, because of my hard work, I have reached quite a height—now I have everything,” he says proudly. “I used to live in a one-room rented flat. Now I own a flat with two rooms. I have also bought a plot of land and very soon I will build my dream house there.”
Material goods have flowed into Chinese and Indian middle-class households. Rakesh has two televisions, two mobile phones, a washing machine, a small refrigerator, a Suzuki Versa van, and a motorcycle. Ten years ago, he ate cheap rice, avoided fruit because of the cost, and could never afford the medicine prescribed by his doctor. Now, he buys branded refined oil and basmati rice and eats all the fruit and vegetables he wants. His son is at a top Lucknow private academy—the City Montessori School—and he has money for an occasional movie and gifts for his wife. He can even save a full quarter of his income for a rainy day.
But he does not forecast many gloomy days ahead. He expects to see continued prosperity. Where Lucknow goes, he goes. “My life is good—more than I could ever have expected,” he says. “My life will not go backward, only forward. Progress will be everywhere.”
You can see the excitement on Rakesh’s face as you listen to his story of success. It is the same with Zhou Zhanghong, a thirty-three-year-old woman in Shanghai.
A successful entrepreneur, she was born in a small farming village in Shandong, a province on China’s northern coast. She has three sisters and two brothers. Her parents raised wheat and vegetables and had an income of just $1,500 a year to feed, clothe, and house their family of eight. She never had a chance to go to college.
“I had to drop out of school to allow my younger brother to attend school,” she says. “He is the first son and was the better student. For me, it was a very tough life. I still remember wanting to buy a new pair of pants for RMB 13 (about $2), but we could not afford them. I just hoped that I would someday make money and be able to live on my own efforts.”
Today, Zhanghong is a picture of upper-middle-class affluence. She is pregnant with her second child. If you can pay roughly $20,000, most provincial governments allow couples to have two children, in spite of the one-child rule introduced in 1978. As we talked in her office, she was wearing a gray cashmere cardigan and beautifully tailored black dress pants. She smiles and carries a lilt of optimism and excitement in her voice.
She is proud of her life story. At the age of eighteen, she left home and found employment at a printing factory in Nanjing. She learned how to set type and the basics of design. At that time, her annual income matched her family’s income. “But it was not enough to generate much in the way of savings because of rent, clothing, and food needs. My boss appreciated my hard work, and I began to think I could make it big.”
She was drawn to Shanghai, where she worked for another printing company. At that point, she married one of her work colleagues, and they decided to open their own business. Together they founded Shanghai Jingma Gift Company. This company is similar to Red Envelope in the United States—inexpensive items for birthdays, anniversaries, company celebrations, and personal use. It sells diaries, notebooks, calendars, leather goods, pens, watches, and other gift items. Consumers place orders either in-store or online. Her husband runs sales and marketing while Zhanghong is in charge of finance and internal management. After a grueling eight years, the company is now operating with twenty employees and is still growing fast: it is projected to have revenues of $3 million for 2012. The couple have an income of roughly $7,000 a month, which places them in the top 1 percent of households in China.
“I believe that as long as I work hard enough, I will achieve my goal. Life is full of opportunities and will only become better,” Zhanghong says. She is grateful for her progress. “I remember our village first got electricity when I was twelve, and our aunt in the city gave us a used TV. That was the very first TV in the village. The entire village would come to our house to watch TV together at night.”
Zhanghong