Chinese 'Diaosi' May Have More Purchasing Power Than The Nation's Super-rich

China’s luxury shoppers may be curtailing their spending due to pressure from the government’s austerity measures, but don't fret, because the real money for many businesses may be with a vast underclass of “losers.”

“Diaosi,” or “losers” in Chinese, is one of those words that became popular online virtually overnight. It refers to young men with few prospects who live with their parents and spend most of their free time and what little disposable income they have online, but lately the term has evolved to encompass more of the Chinese population. A survey conducted by Internet giant Sohu found that 64, 81 and 70 percent of people in their 20s, 30s and 40s, respectively, identified themselves as diaosi, the Wall Street Journal reported Thursday.

While it is still true that this subgroup of Chinese has less money and power than the superrich, their sheer numbers make them a force to be noticed by businesses, and some of the most successful Chinese companies, like Tencent Holdings Ltd. (HKG:0700), Alibaba and YY.com, have done very well by targeting them.

The spending power of the diaosi arises from two factors: rising costs and an emerging virtual economy. These Chinese have no hope of owning homes, cars and other status symbols of the wealthy, so they choose to spend their money on affordable entertainment, oftentimes online, sometimes even on virtual versions of the very luxury products they cannot afford in real life.

Tencent, which operates the popular QQ chat application and blog, said its 89 million customers spent $20 apiece on average in the third quarter of 2013, on virtual clothing and other accessories to dress up their avatars.

Alibaba approaches the group from a different angle. Its Yu’E Bao service, which is a money-market fund, has already attracted 49 million customers and accrued more than $40 billion in investments, just six months after launch. Many diaosi, who do not have enough money to invest in traditional funds with their high threshold, can make use of the service with what little they do have. The average Yu’E Bao user is 28 years old, with an average account size of just $800, according to the Wall Street Journal.