Class Differences and the Effect on Spending in Hong Kong

Hong Kong’s easing economic growth continued to weigh on the performance of the country’s consumer market in 2016. At the same time, Hong Kong’s income distribution remains extremely unequal, despite increased government social spending during the period 2011-2016. Over the long term, economic factors (particularly the performance of the country’s external sector), coupled with demographic and lifestyle trends, will be major determinants of income and expenditure patterns in the country.

Social Class Composition

Social class E (the lowest-income class) is prevalent in Hong Kong (reflecting the country’s wide income gap), representing a large market for low-cost basic necessities, and health goods and medical services.

Social Classes Growth Index

 

growth index of social classes in hong kong

Source: Euromonitor International

During the period 2011-2016, social class C and B (the middle and the second top income classes, respectively) were the country’s fastest growing. This was the result both of an increase in social spending by the Hong Kong government and of a decline in earnings of the country’s top income households over this timeframe.

Nevertheless, social classes E and A (the bottom and top income classes, respectively) are forecast to show the strongest rates of expansion through to 2030, driven by an expected rise in income inequality over the long run.

The Country’s Income Gap Is Set To Keep Widening Over the Long Term

Hong Kong’s income distribution remains highly unequal by both regional and global standards.   Between 2011 and 2016, the country’s income gap recorded a modest decline, principally due to increased social spending by the Hong Kong government over this period.

However, income inequality in Hong Kong is expected to resume its upward trend through to 2030, as existing drivers of inequality (including low taxes, a flexible labour market, and lowskilled immigration) are expected to continue over the long term, generating opportunities for companies targeting consumers at both ends of the income distribution.

Considerable Differences in Spending Patterns Between the Rich and the Poor

Due to the country’s large income gap and elevated housing costs, households in decile 1 have to channel over two-thirds of their spending to cover basic needs.

Hotels and catering, and education are the country’s most discretionary spending categories. Conversely, food and non-alcoholic beverages, and housing are the least discretionary meaning that deciles 1, 5 and 10 allocate a broadly similar share of their spending.

Decile 1 is set to enjoy the strongest increase in discretionary spending capacity during the period of 2017-2030, which will present opportunities for companies offering low-cost products in categories like clothing and footwear, hotels and catering, and health goods and medical services.

Discretionary Spending by Deciles

discretionary spending by deciles in hong kong

Source: Euromonitor International

Download our report “Income and Expenditure: Hong Kong” to gain more valuable insights about Hong Kong’s current consumer market and the forecasted income and expenditure patterns in the future.