For a number of years, people in the U.S. have been talking about how the middle class is disappearing. The rich are getting richer, the poor are getting poorer, and many speculate that soon there will be nothing in between. However, in China, just the opposite has been happening. The Chinese middle class is growing, and it’s having a significant impact on the world economy—particularly the gold market.
China’s Middle Class
China is the most populous country in the world. Their workforce consists of around 770 million people—more than five times that of the United States. At the same time, their average income has traditionally been far below that of the U.S. and other comparable nations.
In fact, low wages in industries such as manufacturing are one of the main reasons why China’s economy thrives. Since it’s cheaper to produce goods a lot of companies from around the world set up operations there. However, while this is great for businesses, it’s bad for the workers, resulting in a larger lower class.
But changes in recent years have begun to reverse this trend. Specifically, several government initiatives have improved the minimum wage across all industries, and manufacturing in particular. Income for low wage workers is expected to double by 2020, as compared to their wages in 2010. The result is a significant growth in the Chinese middle class.
This growth has a number of possible implications. On the one hand, a larger middle class theoretically means more business opportunities. Companies such as Starbucks are significantly expanding their markets in China to cater to this new consumer base. As they open new stores, it leads to more jobs and helps the economy continue to thrive—as well as our economy, as we do business with them.
However, that’s not quite the way things are happening. In fact, China’s economy is currently in the middle of an economic slowdown. The effects of this decline are being felt in American companies as well, many of which are rethinking their business strategies as they relate to China.
The Chinese Gold Market
While the Chinese economy may be difficult to predict at the moment, there’s one area in which it’s doing very well: gold. The gold market is thriving, and the expanding middle class is only helping things.
Gold was actually illegal for private citizens to own in China for over fifty years. The ban was finally lifted in 2004, and the market has grown ever since. Moreover, in 2009 the Chinese government began a campaign to encourage the buying of precious metals, which has driven demand even higher. Since then, imports of gold have increased sevenfold.
With the rise of the middle class, the Chinese are using their extra income to buy more gold. About 80% of that is in the form of jewelry, but bars, coins, and other forms of the precious metal have also proven quite popular. In fact, last year, while demand for jewelry dipped slightly, gold bars and coins increased by 20%.
As with other aspects of China’s economy, this demand for gold also has implications across the globe. Increased demand drives up prices.
Gold has historically been a secure investment, one that helps investors safeguard the wealth over time. Stocks rise and fall; and economies may falter and experience setbacks. Even in the midst of a growing middle class, China is still experiencing financial and monetary problems. But gold maintains its buying power over decades, keeping you safe from global and domestic financial turmoil.