China’s Middle Class on the Move

With home and auto purchases growing at an average 34 percent and 22 percent annual pace in the last decade, respectively, Chinese households have already acquired a significant number of material assets.

Deutsche Bank thinks tourism could be the next major driver for overall consumption in China. In the next five years, in line with the government’s plan, tourism-oriented travel might undergo tremendous expansion, as Chinese consumers opt for more services-related expenditures instead of real estate and durable goods. Tourism revenue is expected to grow by more than 20 percent a year over 2011-2015 versus 14 percent from 2005-2009, according to Deutsche Bank.

There’s plenty of room for the tourism sector to catch up. Growth of domestic tourism in China has lagged auto sales by a cumulative 500 percentage points in the past ten years.

China’s per capita GDP is expected to reach $4,300 this year and $5,000 by 2012, which Deutsche Bank says was a tipping point for Korea and Taiwan, both of which experienced jumps in consumption of services like tourism.

In terms of household expenditures, travel ranks high with Chinese citizens. A CLSA survey from last year revealed that travel ranked number one among planned major expenses during 2010.

In addition, CLSA’s research revealed that nearly 80 percent of middle-class families (there are about 80 million of them) planned to travel domestically during 2010. Fifty-five percent of them planned to travel internationally to locations such as Macau, Hong Kong and Taiwan.

This acceleration in tourism growth should benefit hotels, gaming resorts, travel agencies, airlines and retailers.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

About Frank Holmes 263 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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