Amid the celebration of China's economic success during the past two decades, one factor is frequently overlooked: favorable demographics. Population trends have supported the enormous expansion of the country's manufacturing base and have driven extraordinary consumption growth in sectors such as real estate and household electronics. In recent years, the emerging middle class has unleashed a wave of spending on health care, education, entertainment, and travel. The Chinese still save huge sums—totaling nearly 40 percent of the gross domestic product—but a gradual decline in the savings rate has by itself contributed an incremental 1 to 2 percent in recent GDP growth.

More and more two-career, childless middle-class couples have far bigger incomes and much higher expectations than their parents did, and these young people aren't shy about spending their newfound prosperity. China's middle-class urbanites have poured money into homes, cars, and vacations, thereby making it the world's largest market for many consumer goods, from beer to mobile phones to TVs, as well as the fifth-largest auto market. One indicator of this segment's buying power is its impact on residential-construction patterns and therefore on builders. In urban China, the average household size dropped from 4.0 in 1984 to 3.1 in 2003....