Sunday, Nov 23, 2014, 4:15 PM CST – China

Commentary

The Future of the Chinese Middle Class

The Party is now aware that in order to create a genuinely prosperous and stable society it can no longer sideline the aspirations of the consumer class

Cheng Li

Ryan Mc Elveen

When the Rolex store in Beijing’s swanky Sanlitun shopping district shut its doors earlier this year due to lackluster sales, it was taken as a sign that the government’s austerity campaign, launched in December by Xi Jinping, had begun to take effect.

At the same time, upscale Beijing restaurants in January saw revenue decline an average 35 percent on the previous year. A certain sense of irony accompanies this new frugal approach to life among the country’s upper class – just as their leaders advocate increased domestic consumption, those with genuine consumer power are going to ground, suddenly afraid to flaunt their wealth.

A pro-austerity campaign alongside a pro-consumption drive may seem paradoxical, but in reality both movements are part of a wider push to placate a middle class that has, despite lacking political power, emerged as a core constituency with its own unique needs and desires.

As China’s growth model shifts from being export to consumption-based, the burgeoning middle class hold the keys to the effective future governance and prosperity of the entire country more than any other group. Companies and banks abroad are also closely observing the rise of the Chinese consumer, knowing that their purchasing power could potentially reshape the global economy.

After years of debate over its very existence, the Chinese middle class (property-owning professionals and small and medium-sized business owners) has now emerged as the driving force behind Chinese policy development and is in the process of becoming the largest single consumer market the world has ever seen.

It was not until the late 1980s that the term “middle class” began to appear in academic writing related to the rise of rural industry and private urban entrepreneurship. At that time, academics generally agreed that referring to these newly-monied up-and-comers as “middle class” was not particularly apt because they tended to come from underprivileged and uneducated backgrounds.

Over the past decade, however, increased globalization and urbanization has created a group that the government now seems comfortable calling China’s middle class, although this group is materially different from its US and European equivalents.

Although China’s middle class is made up of a complex mosaic of groups and individuals, it can be divided into three major clusters.

The first is an economic cluster that includes private sector entrepreneurs, small urban business owners, employees of foreign and domestic joint ventures, stock and real estate speculators, rural industrialists and rich farmers. The second is a political cluster that includes government officials, clerks, state sector managers and lawyers. The third and final group is a cultural and educational cluster that includes academics and educators, media personalities, public intellectuals and those working for think tanks.

Based on criteria combining occupation, income, consumption and innovation, distinguished Chinese sociologist Lu Xueyi noted that in 2009 the middle class constituted 23 percent (243 million) of China’s total population, up from 15 percent in 2001. Lu predicts that the Chinese middle class will grow at an annual rate of 1 percent over the next decade or so. As a result of this consistent growth, members of the middle class will be better able to organize socially and politically, leaving the government with no other choice but to proactively factor the middle class into all major policy decisions.

Globally, the meaning of “middle class” tends to translate well in demographic and economic terms, but its political and cultural significance tends to differ from country to country. Lu believes that China will become a “true middle-class nation” in twenty years when the middle class constitutes 40 percent of the Chinese population, a figure approximately on a par with her analysis of Western societies.         

According to a study by two analysts at the Brookings Institution, China accounted for only 4 percent of global middle class spending in 2009. By volume this made it the seventh-largest middle class country in the world (unsurprising, given its 1.3bn population), but in terms of per capita income, China still lags far behind Western, and most other East Asian, economies.

Nevertheless, the Brookings Institute concluded that China could become the “world’s largest single middle class market by 2020, surpassing the United States.”

The middle class is not evenly distributed throughout China. According to some calculations, by 2009, this group already constituted 40 percent of the population in major cities such as Shanghai and Beijing.

The proportion of Chinese urban residents is expected to increase by 34.8 percent between 2000 and 2030, the fastest urbanization rate in history, according to economist Hu Angang. By 2030, 71 percent of the Chinese population will live in cities, making up 21 percent of the world’s total urban population. However, how this will impact average incomes is far from clear.

While the economic opportunities for China’s new middle class will be great, so will the costs. While the ability to buy a house, a car, and luxury goods has become synonymous with the Western middle class ideal, in China, a country already facing grave environmental, health, and housing crises long before it has made its citizens even moderately wealthy, such hopes and dreams could yet come to represent the single greatest socioeconomic dilemma of the 21st century.

What could hamper the transition to consumption-based growth could be a general skepticism concerning social mobility. While Americans thrilled at the prospect of fulfilling the American Dream in the 1950s, in China, few seem to enjoy such unbridled optimism.

The Chinese Ministry of Health revealed in 2011 that the majority of Chinese professionals — 51 percent — showed signs of depression. Extreme socioeconomic pressure in Chinese society, including skyrocketing housing prices when home ownership is almost always a precondition of marriage, environmental degradation which has led to some of the world’s worst urban pollution, health scares over tainted food, water and infant formula and the ever-present problem of official corruption have all shattered public confidence in the government and the country’s future direction.

Middle class grievances over government policy have become increasingly evident in part because the expansion of the middle class has slowed even as economic disparity has increased. Members of the middle class often complain that they, rather than the upper class, have shouldered most of the financial burden of the government’s “harmonious society” policies.

As the Party turns to austerity while also trying to convince the populace to spend more freely, the message is clear: there is now  the political will at the top to engender optimism in the middle class. Indeed, only when middle class consumption fulfils its potential and when middle class interests in public health, rule of law, and freedom of speech are all institutionally protected, will Xi Jinping’s “Chinese Dream” have a hope of becoming a reality.

 

(Cheng Li is the director of research and senior fellow at the John L Thornton China Center in the Foreign Policy program at The Brookings Institution. He is also a director of the National Committee on US-China Relations. Ryan McElveen is a researcher at The Brookings Institution Thornton China Center. A modified version of this commentary was originally published in International Studies Quarterly)

 

As China’s consumer class emerges to become the driving force behind growth, it provides a new challenge to the country’s leadership

 

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