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Getting to grips with China’s middle class

July 2, 2014 by Brendan O'Reilly

The ongoing expansion and enrichment of China’s middle class is an unprecedented development in a nominally Communist country. Hundreds of millions of Chinese now find themselves in an economic position between constant struggle and complete ease. How China’s leaders – and the wider world – deal with the growing aspirations and expectations of China’s middle class will be one of the defining challenges of this century.

Perhaps the greatest obstacle to understanding the rise of the Chinese middle class is the problem of definitions. There are multiple methods for identifying who is among the Chinese middle class. Accordingly, estimates in the size of China’s middle class vary widely.

The most liberal definition of the Chinese middle class comes from the Asian Development Bank. Their assessment was looks at the “Asian Middle Class”, which it defined as a daily income of between US$2-20. This standard puts the Chinese “middle class” population at over 800m – more than 60% of the entire population.

Chinese state media largely dismissed this definition of “middle class”. Ye Yan, writing at China.org.cn, pointed out that “$2 is barely enough to buy a chicken burger in China, not to mention basic services like water and electricity…. The report is just another example of overseas observers consistently over-estimating China’s purchasing power.” It should be noted that the Chinese government consistently points out its status as a ‘developing country” in order to justify official positions on matters such as climate change.

A rather more reasonable income-based definition for the middle class in China comes from McKinsey & Company. The total middle class is defined in terms of urban households with incomes of between 60,000 and 229,000 RMB per year ($9,662 to $36,877 at current exchange rates). Fully 68% of China’s urban households – about 35% of total households in the country – meet this definition.

McKinsey makes an important distinction between the “Mass Middle Class” and the Upper Middle Class. The Upper Middle is defined in terms of annual household income of between $17,070 and $36,877 and accounts for 14% of China’s urban population. This sector’s levels of consumption in terms of transportation, travel, food, and luxury goods are roughly on par with its middle class counterparts in richer countries.

Some experts look at other qualifiers to define the Chinese middle class. James R.F Berkely, managing director of Ellice Consulting says “The best way to define them is actually through their education rather than their wealth.” Similarly, Zhou Xiaotong of Nanjing University gives three criteria for belonging in the middle class – income of at least 5,000 RMB a month, a university education, and a position as an “owner, manager or technician in companies or public institution”. Interestingly enough, 70% of those surveyed that meet all these requirements do not consider themselves to be middle class.

Changing Landscape

Regardless of the specific definitions of middle class in China, its rise over the last several decades is having inescapable effects, both domestically and globally. As hundreds of millions of Chinese have escaped dire poverty and economic uncertainty, their priorities and expectations of the government have changed. This shift is especially noticeable with regards to attitudes towards industrial pollution. When the majority of Chinese were living in conditions of severe hardship, the over-arching priority of government and most people was economic development.

Middle class Chinese now have the luxury to be concerned about the long-term effects of pollution, though they often struggle to make their voices heard without resorting to organized protest. According to Andrew Wedeman of Georgia State University: “The failure of local governments to consult local communities is a big issue…As property owners, professionals, and possibly party members, they feel they should be consulted and it angers residents when they find out that decisions have been made without any prior notice.”

These increasingly widespread concerns may be leading to a reassessment of official development priories. China is opening its first dedicated environmental court in Fujian, whilst Chinese premier Li Keqiang has called for a “war on pollution”.

At the same time that increasingly wealthy Chinese people seek a cleaner environment at home, their consumption patterns are having dramatic effects abroad. Chinese households rely on imports for energy, grain, wood, iron, and other natural resources. A report from the US Energy Information Agency predicts China will edge out the United States as the world’s largest net importer of oil (petroleum) this year.

As Chinese purchasing power expands, there will be massive potential economic benefits to the countries and companies who sell to China. A report from Australian company Allen Consulting on the benefits of trade with China found that it was worth an annual average of over $14,000 for each Australian household.

When asked about the impact of the rise of the Chinese middle class on international corporations, Ellice Consulting’s James R.F. Berkely told China Outlook “The shift is of such an enormity that certain industry sectors… are going through the most phenomenal levels of change… As one CEO said to me ‘This is some of the greatest opportunity in my lifetime, and your lifetime’, and he was aged 65, he was clearly looking at a pretty big lifetime ..I cant see that any significant international company is not thinking long and hard today about their presence in China and the potential that lies within the Chinese middle class for the exponential growth of their business.”

Members of the Chinese middle class (and their even wealthier compatriots) are making their impact felt abroad not only though economic influences, but also in the fields of education and tourism. According to official statistics, over 399,000 Chinese students were studying abroad in 2012, a 17% increase from the previous year. China is also now the largest source for outbound tourism in the world, both in the raw number of outbound trips (roughly 95m in 2013) and the amount of money travellers spent on international travel.

While an increasingly wealthy middle class may be the envy of most nations, China’s leaders now face the conceptually difficult position of leading a Communist polity supported by a well-entrenched middle-class. Professor Charles Desnoyer, who studies history at La Salle University, points out the ideological contradictions faced by the CCP: “the Maoist idea was continuous revolution with a view to eliminating ‘feudal’ and ‘bourgeois’ practices and thinking. This last item is, of course, the essence of our popular ideas of what a middle class should embody…. So, in terms of what now constitutes the largest middle class in the world, China has also undergone a more or less complete cultural revolution and finally achieved in large part the goals of its original revolution… The Party has staked its existence on continued growth. So far, the bet seems to have paid off.”

In the last several decades China’s economic development and relative political stability have functioned to some degree in a self-sustaining loop. China’s rapid economic growth has been largely dependent on exports, but as the price of labour goes up along with the purchasing power of Chinese citizens, there is a concerted governmental push to increase domestic consumption. Last year outgoing premier Wen Jiabao stressed  “We should unswervingly take expanding domestic demand as our long-term strategy for domestic development.” Continuing China’s economic expansion by enlarging and enriching the Chinese middle class is now one of the central goals of the Chinese Communist Party.

As China’s economic growth slows and problems with pollution and political unaccountability mount, Chinese leaders may have a challenging time dealing with the expectations of the growing middle class. However, the struggle is not confined to China’s borders. Even after three decades of rapidly rising consumption levels, the average Chinese person’s utilization of many resources – for example, electricity – is only roughly one third of the levels of consumption seen in many richer countries. New technologies, or a dramatic reappraisal of the very concept of development, will be necessary if the expectations of China’s middle class masses are to be met.



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