China's middle class debate

to buy or not to buy

During the preparation of our Chinabiz Speakers Bureau (still under construction)an array of interesting ideas is coming up. Our speakers are opinion leaders in many areas, but that of the emerging middle class in China is one where our speakers take very different position.
On one hand Paul French, supported by CEQ-editor Arther Kroeber (no profile yet) say we should forget about the middle class in China. Here in today's Wall Street Journal Paul French repeats their position:

Most retailers encounter more mixed fortunes. IKEA still operates only two stores and has managed to grow sales largely by decreasing prices by an average of 44% since 2000. Most foreign retailers have discovered that China is a volume-driven, fiercely price-competitive market, which means wafer-thin- to non-existent margins. You can expand and open more stores in such a large country and you can potentially sell a lot. However, if you have to slash margins to the point of eradicating them altogether, what's the point? You end up giving your merchandise away. Same-store sales for many western retailers in China are flat. The growth is coming from new store openings and that is simply not sustainable in the long run.

Paul should look into his figures every now and then, since IKEA has today four stores in China, but I guess that would not change his position.
Our speaker Shaun Rein, who in a previous life as a VC has been bringing in companies like McDonalds and IKEA into China, stands on the other side of the argument, defending what so many foreign business people think they can see with their own eyes: a booming Chinese middle class. In CSMonitor:

The emergence of a solid middle class, in cities and towns across the country, will transform the Chinese market, predicts Shaun Rein, founder of the Shanghai-based China Market Research Group.
"The second- and third-tier cities are where the real money is going to come from in the next 10 years," he predicts, referring to the provincial cities that do not yet enjoy the prominence of Beijing, Shanghai, or Shenzhen. "Everybody is starting to understand that that is where they need to be."

In the same article others join his argument:

And that market is set to grow even larger as 300 million more Chinese move into urban areas over the next 10 years in a continuing mass population shift that will see 100 cities grow to a population of more than 3 million.
The bulk of these new urbanites will become members of the middle class, though their incomes - around $5,000 a year - will be modest to begin with. In China, however, $5,000 buys a lifestyle that would cost four times as much in America, and there will be a lot of families with that much money: Grant expects 700 million Chinese to have joined the "consumer class" by 2020 compared with less than 100 million today

Now, this smells like an interesting debate that is long overdue.