Draft:The Rise of the Middle Class of China

The middle class in China has risen rapidly in the last few decades. The middle class is defined as middle-income, meaning that they earn within the scope of 100,000 to RMB 500,000 per year..[1]. With the middle-class proportion of the Chinese population growing to more than 50%, the consequences prove both beneficial or detrimental depending on the stakeholder[2]. This has prompted inquiry into the causes and implications behind this phenomenon.

Early history of the middle class in China

The 1970s

After the catastrophic Cultural Revolution, the Chinese economy was on a steep decline. People could hardly make their living; they had no opportunity to care about economic development nor the idea of the middle class[3]. However, when the 1970s came, things changed when Deng Xiaoping made his Southern Tour Speech. This speech brought out the Reforming and Opening policy that China still views as the fundamental dogma of its mixed-economy today. Moreover, this speech allowed the following important developments during this period:

  • Development of the private economy: In the post-Mao reforms, the government legalized the private economy and encouraged its development. This led to the re-emergence and rapid growth of the private economy in Chinese society. The development of the private economy has created many jobs for the middle class, such as managerial and professional positions.
  • Inflows of Foreign Direct Investment (FDI): In the 1970s, foreign direct investment (FDI) in China increased dramatically. The Chinese government opened its doors to foreign investment, leading to a surge in FDI inflows. The influx of foreign investment helped create more middle-class jobs in China.
  • Reform of enterprises and public organizations: The reform policies of the Party and the state have also played a crucial role in the growth of the middle class. The government reformed enterprises and public organizations, which helped create middle-class jobs and increased the career mobility of college graduates[4].

The 1980s

This era is commonly seen as the outbreak of the Chinese middle class, as the Reforming and Opening policy put the Chinese economy into a fast track. In this period, under Deng’s policy, some of the important developments during this period were:

  • Opening to foreign investment: In the 1980s, China began to open to foreign investment. Special Economic Zones (SEZs) were established in coastal areas to attract foreign capital and technology. These special zones offered preferential policies and incentives to foreign investors, leading to a large influx of foreign direct investment (FDI) into China.
  • Privatization and the rise of the private sector: The government legalized the private economy and encouraged its development. State-owned enterprises (SOEs) were reformed, and some were privatized or transformed into joint ventures with foreign companies. This led to the emergence and rapid growth of the private sector, creating new jobs, and contributing to the formation of a middle class.
  • Liberalization of the job market: The old system of "centralized job allocation" by the Government for university graduates was gradually phased out. Graduates were given autonomy in seeking and choosing jobs, thus increasing career mobility. The liberalization of the job market for university graduates contributed to the development of the middle class[5].

The 1990s

In the 1990s, China's middle class experienced further growth and transformation. The following are some of the important developments during this period:

  • Urbanization and migration: Rapid urbanization and rural-urban migration were prominent trends in the 1990s. Urban centers experienced significant growth as more and more people migrated from rural areas to cities in search of better economic opportunities. This urbanization process created new middle-class jobs in sectors such as finance, technology, services, and manufacturing.
  • Changes in consumer culture and lifestyles: With rising incomes and a wider range of consumer goods, the middle class experienced a shift in lifestyles and consumption patterns in the 1990s. People increasingly emphasized leisure activities, travel, and the pursuit of a higher quality of life[6].

Recent history of the middle class in China

Despite the rapid urbanization and market reforms marked by Deng Xiaoping’s ‘southern tour’ in 1992, the middle class constituted a rather small segment of Chinese society throughout the 1990s; with less than 10% of the population earning over 10,000 yuan annually until the year 2000[7].

The turn of the millennium marked a significant shift in the size of the Chinese middle class, as well as CCP economic policy. In 2002 General Secretary Jiang Zemin announced to the fifth congress of the CCP that economic policy would be oriented towards to the formation of an ‘olive-shaped’ society, wherein most of the population would be xiaokang(小康) - roughly meaning economically comfortable - and relatively few would be disproportionately rich or in severe poverty[8]

Accompanied by significant GDP growth (see figure 1) over the course of the early 21st century, the middle class has grown significantly. While scholars differ on definitions of middle class, the trend of rapid income growth for the average Chinese citizen is clear. As of 2002 only 1% of the population were middle class (defined as at least 60% of median income in EU15 countries), rising to 7% of the population by 2007 and 19% by 2013 (see figure 2)9. Though notably this trend reflects a significant urban/rural divide, with only 4% of the rural population being middle class compared to 34% of urban residents[9]

The growth of China’s middle class may however prove unsustainable. Much of China’s economic growth stems from what analysts speculate to be a bubble in the housing market, with home mortgage loans constituting a third of all lending activity in the country[10]. Additionally, property represents 70% of Chinese households’ assets[11]; a significant proportion of which is overvalued, particularly in major cities such as Shanghai, Beijing and Qingdao, in which housing was overvalued by 13%, 20% and 30% respectively as of 201010. This leaves many younger members of the middle-class cohort unable to afford property; while 35% of 18-27 year old’s do own property - quite a large proportion by international standards - this is significantly less than older generations, with ownership rates of 80%[12]. Additionally, the housing price: income ratio remains significantly higher than even other economies with inflated housing markets - almost twice as high as the UK and 50% higher than Australia10. Should property values continue to remain high, this would pose significant barriers for younger cohorts to enter the middle class. This is unlikely, a significant proportion of China’s largest property developers have recently gone bankrupt, signaling an end to the property bubble[13]. Regardless, with so much of middle-class households’ capital being represented by housing, however market trends progress, the growth of China’s middle class is set to stagnate.

Causes of the rise of the middle class in China

During the Third Plenary Session of the Eleventh Central Committee in 1978, the Chinese Communist Party announced the embarkment on a reform period. Deng Xiaoping, the new leader of the Party, shifted the central task from Mao’s class struggle toward modernization[14]. Economic development; the introduction and liberalization of private enterprises; as well as the opening to foreign investment and globalization boosted the Chinese economy and brought in a dynamic shift into the social structure[14]. However, because of rapid economic reform, the economic gap among social groups widened leading to social stratification and the emergence of a middle class[15]. The switch from class struggle to economic development changed the distribution of social values, where market power was now seen as more desirable than administrative power[16]. Class standards were based on economic, social, and cultural capital rather than symbolic means as used during Mao’s rule.

By switching to the use of economic and legal instruments over direct administrative management, microeconomic reforms introduced new financial services and gave enterprises greater freedoms. Both state and private enterprises could structure and distribute salaries through their own measures rather than relying on a fixed structured system. Additionally, the guarantee of job assignment was discarded thus largely dismantling the “iron rice bowl” that promised job security and stable wages during the Mao era[14]. Housing reforms in the 1990s also abandoned the old system of treating housing as a welfare benefit and instead used housing as a commodity. This opened the housing sector as a new consumerist market to the Chinese population[15].

Household income, as a percentage of disposable income, increased from 55% in the pre-reform period to 70% in 1983-84.[citation needed] Certain social groups, such as the offspring of cadres and keen entrepreneurs, were able to monopolize this change, increase living standards, and be the first to form the middle class[15].

Reforms within the hukou system allowed for greater social mobility as those from rural backgrounds were no longer restricted to the rural setting and migrated to urban areas to find higher-paying employment. Rural-urban migration, specifically with younger workers, was especially high in big coastal cities such as Shanghai and Beijing. Rural market reforms in 1978 also led to significant increases in agricultural production which continued to fuel the rise of the urban population and drive rural economic development[17].

Implications of the rise of the middle class in China

This section will look at the implications of the rising middle class, specifically in terms of demographic, social, economic, environmental, and political effects.

Economically, the rise of the middle meant higher levels of income, income that no longer went towards essential spending, resulting in a growing interest in luxury goods and services[2]. This effect illustrates that the purchasing power of the middle class in China will be equal to all of North America and Europe’s middle class over the next decade[18]. Furthermore, the purchasing power encourages foreign and local businesses to adjust to the growing demand of better-quality goods and services[19]. Graph shows the continuous rise of disposable income in China.

Socially, this means more people seeking out higher level education, and that there will be an increase in educated citizens[1]. This could also lead to people seeking more benefits from the government and cracking down on areas that need improvement[20]. Another important effect is that with the rise of skilled labor and education, China’s usual focus on low-skilled factory labor has already seen a shift, with more than 40,000 factories shutting down every year, and more and more factories being offshored in countries like India and Vietnam[21].

Demographically, most of the rise in China’s middle class will be experienced in those 2nd and 3rd tier cities in the north and west of China[22]. These cities will become more important and investment, both foreign and local, should be made to accommodate the growing purchasing power. It also illustrates a rise in social mobility, diminishing the importance of Hukou and other governmental restrictions[23].

Environmentally, there are no benefits, but a lot of possible costs that could be incurred from the rise in unnecessary spending by the middle class. It has been shown that those in the middle class tend to increase their consumption through luxury goods and services, like vacations abroad or buying luxury vehicles, they all have detrimental effects to the environment[24]. This is a critical issue due to China’s overall lack of environmental sustainability and care[25].

Politically, China’s rise of the middle class when viewed from modernization theory could be predicted to argue for democratic reforms and be stricter with the government[26]. This is also pertinent to the rise of education in the lower tiered cities of China, which means more enforcement would have to be made to maintain control across a larger area of educated people. The issue however is that China is a unique case, where many of the upper middle class, especially those more technocratic have been co-opted by the CCP to maintain power over the country, and tend to be more politically conservative[27]. With the CCP’s control of the growing middle class, if they are continually monitored and information is restricted, it will not pose too much of an issue in forms of collective action or revolution.

References

1.Huld, A. and Interesse, G. (2023) The Middle Class in China - Growth, Policy, and Consumption, China Briefing News. Available at: https://www.china-briefing.com/news/china-middle-class-growth-policy-and-consumption/ (Accessed: 26 October 2023).

2.Barton, D., Chen, Y. and Jin, A. (2013) Mapping China’s middle class, McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class (Accessed: 26 October 2023).

3.Dernberger, R.F. (1972) ‘Radical ideology and economic development in China: The Cultural Revolution and its impact on the economy’, Asian Survey, 12(12), pp. 1048–1065. doi:10.2307/2643023.

4.Luo, C. and Zhi, Y. (2019) ‘Reform and opening up in the New Era: China Trade Policy Review’, The World Economy, 42(12), pp. 3464–3477. doi:10.1111/twec.12895.

5.Chen, J. (2013) ‘China’s middle class: Definition and evolution’, A Middle Class Without Democracy, pp. 29–65. doi:10.1093/acprof:oso/9780199841639.003.0002.

6.Yuan, Z., Guanghua, W. and Khor, N. (2011) ‘The rise of the middle class in the People’s Republic of China’, SSRN Electronic Journal [Preprint]. doi:10.2139/ssrn.1806769.

7.Bonnefond, C. et al. (2015) In search of the elusive Chinese urban middle class: an exploratory analysis. Post-communist economies. [Online] 27 (1), 41–59.

8.Goodman, D. S. G. (2014) Class in contemporary China / David S.G. Goodman. Cambridge, UK: Polity.

9.Sicular, T. et al. (2020) ‘China’s Emerging Global Middle Class’, in Changing Trends in China’s Inequality. [Online]. New York: Oxford University Press.

10.Dreger, C. & Zhang, Y. (2013) Is there a Bubble in the Chinese Housing Market? Urban policy and research. [Online] 31 (1), 27–39.

11.Dengxin, D. (2020) ‘Houses account for about 70 pct of Chinese households’ assets, putting pressure on consumption stimulation’, Global Times, 29 April.

12.Clark, W. A. V. et al. (2021) Can millennials access homeownership in urban China? Journal of housing and the built environment. [Online] 36 (1), 69–87.

13.Hale, T. et al. (2023) ‘How China’s property crisis has unfolded, from Evergrande to Country Garden’, Financial Times, 23 October.

14.Su, H. et al. (2022) The rise of the middle class in contemporary China. Singapore: Springer.

15.Li, C. (2010) China’s emerging middle class beyond economic transformation. Washington, D.C: Brookings Institution Press.

16.Chen, J. (2013) “China’s Middle Class: Definition and Evolution” in A Middle Class Without Democracy: Economic Growth and the Prospects for Democratization in China” (2013: Oxford Academic). https://doi.org/10.1093/acprof:oso/9780199841639.003.0002.

18.Cao, G.Y., G. Chen, L.H. Pang, X.Y. Zheng, and S. Nilsson. (2012) “Urban Growth in China: Past, Prospect, and Its Impacts.” Population and Environment 33, no. 2/3: 137–60. http://www.jstor.org/stable/4148795519.Hamel, K. (2022) Look East instead of West for the Future Global Middle Class, OECD Development Matters. Available at: https://oecd-development-matters.org/2019/05/07/look-east-instead-of-west-for-the-future-global-middle-class/ (Accessed: 26 October 2023).

20.Barton, D. (2022) Chapter 7: The Rise of the Middle Class in China and its Impact on the Chinese and World Economies. Available at: https://www.chinausfocus.com/2022/wp-content/uploads/Part+02-Chapter+07.pdf (Accessed: 26 October 2023).

21.Fewsmith, J., (2007) The political implications of China’s growing middle class. China Leadership Monitor, 21, pp.1-8.

22.Batabyal, A.A. and Gosnell, A.J. (2023) If China’s middle class continues to thrive and grow, what will it mean for the rest of the world?, The Conversation. Available at: https://theconversation.com/if-chinas-middle-class-continues-to-thrive-and-grow-what-will-it-mean-for-the-rest-of-the-world-158748 (Accessed: 26 October 2023).

23.Liu, Z. and Ma, A. (2023) BCG report: China’s middle class to reach 40 percent of population by 2030, Jing Daily. Available at: https://jingdaily.com/bcg-report-china-middle-class-generational/ (Accessed: 26 October 2023).

24.Chen, C. and Qin, B. (2014) The emergence of China's middle class: Social mobility in a rapidly urbanizing economy. Habitat International, 44, pp.528-535.

25.Reusswig, F. and Isensee, A. (2009) Rising capitalism, emerging middle-classes and environmental perspectives in China: A Weberian approach. The new middle classes: Globalizing lifestyles, consumerism and environmental concern, pp.119-142.

26.Economy, E.C. (2007) The Great Leap Backward-The Costs of China's Environmental Crisis. Foreign Aff., 86, p.38.

27.Li, H. (2006). Emergence of the Chinese Middle Class and Its Implications. Asian Affairs, 33(2), 67–83. http://www.jstor.org/stable/30172645

28.Ekman, A. (2015). China's Emerging Middle Class: What Political Impact? (p. 40). Paris: IFRI Center for Asian Studies.

  1. ^ a b Huld, A. and Interesse, G. (2023) The Middle Class in China - Growth, Policy, and Consumption, China Briefing News. Available at: https://www.china-briefing.com/news/china-middle-class-growth-policy-and-consumption/ (Accessed: 26 October 2023).
  2. ^ a b Barton, D., Chen, Y. and Jin, A. (2013) Mapping China’s middle class, McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class (Accessed: 26 October 2023).
  3. ^ Dernberger, R.F. (1972) ‘Radical ideology and economic development in China: The Cultural Revolution and its impact on the economy’, Asian Survey, 12(12), pp. 1048–1065. doi:10.2307/2643023.
  4. ^ Luo, C. and Zhi, Y. (2019) ‘Reform and opening up in the New Era: China Trade Policy Review’, The World Economy, 42(12), pp. 3464–3477. doi:10.1111/twec.12895.
  5. ^ Chen, J. (2013) ‘China’s middle class: Definition and evolution’, A Middle Class Without Democracy, pp. 29–65. doi:10.1093/acprof:oso/9780199841639.003.0002.
  6. ^ Yuan, Z., Guanghua, W. and Khor, N. (2011) ‘The rise of the middle class in the People’s Republic of China’, SSRN Electronic Journal [Preprint]. doi:10.2139/ssrn.1806769.
  7. ^ Bonnefond, C. et al. (2015) In search of the elusive Chinese urban middle class: an exploratory analysis. Post-communist economies. [Online] 27 (1), 41–59.
  8. ^ Goodman, D. S. G. (2014) Class in contemporary China / David S.G. Goodman. Cambridge, UK: Polity.
  9. ^ Sicular, T. et al. (2020) ‘China’s Emerging Global Middle Class’, in Changing Trends in China’s Inequality. [Online]. New York: Oxford University Press.
  10. ^ Dreger, C. & Zhang, Y. (2013) Is there a Bubble in the Chinese Housing Market? Urban policy and research. [Online] 31 (1), 27–39.
  11. ^ Dengxin, D. (2020) ‘Houses account for about 70 pct of Chinese households’ assets, putting pressure on consumption stimulation’, Global Times, 29 April.
  12. ^ Clark, W. A. V. et al. (2021) Can millennials access homeownership in urban China? Journal of housing and the built environment. [Online] 36 (1), 69–87.
  13. ^ Hale, T. et al. (2023) ‘How China’s property crisis has unfolded, from Evergrande to Country Garden’, Financial Times, 23 October.
  14. ^ a b c Su, H. et al. (2022) The rise of the middle class in contemporary China. Singapore: Springer.
  15. ^ a b c Li, C. (2010) China’s emerging middle class beyond economic transformation. Washington, D.C: Brookings Institution Press.
  16. ^ Chen, J. (2013) “China’s Middle Class: Definition and Evolution” in A Middle Class Without Democracy: Economic Growth and the Prospects for Democratization in China” (2013: Oxford Academic). https://doi.org/10.1093/acprof:oso/9780199841639.003.0002.
  17. ^ Cao, G.Y., G. Chen, L.H. Pang, X.Y. Zheng, and S. Nilsson. (2012) “Urban Growth in China: Past, Prospect, and Its Impacts.” Population and Environment 33, no. 2/3: 137–60. http://www.jstor.org/stable/41487955.
  18. ^ Hamel, K. (2022) Look East instead of West for the Future Global Middle Class, OECD Development Matters. Available at: https://oecd-development-matters.org/2019/05/07/look-east-instead-of-west-for-the-future-global-middle-class/ (Accessed: 26 October 2023).
  19. ^ Barton, D. (2022) Chapter 7: The Rise of the Middle Class in China and its Impact on the Chinese and World Economies. Available at: https://www.chinausfocus.com/2022/wp-content/uploads/Part+02-Chapter+07.pdf (Accessed: 26 October 2023).
  20. ^ Fewsmith, J., (2007) The political implications of China’s growing middle class. China Leadership Monitor, 21, pp.1-8.
  21. ^ Batabyal, A.A. and Gosnell, A.J. (2023) If China’s middle class continues to thrive and grow, what will it mean for the rest of the world?, The Conversation. Available at: https://theconversation.com/if-chinas-middle-class-continues-to-thrive-and-grow-what-will-it-mean-for-the-rest-of-the-world-158748 (Accessed: 26 October 2023).
  22. ^ Liu, Z. and Ma, A. (2023) BCG report: China’s middle class to reach 40 percent of population by 2030, Jing Daily. Available at: https://jingdaily.com/bcg-report-china-middle-class-generational/ (Accessed: 26 October 2023).
  23. ^ Chen, C. and Qin, B. (2014) The emergence of China's middle class: Social mobility in a rapidly urbanizing economy. Habitat International, 44, pp.528-535.
  24. ^ Reusswig, F. and Isensee, A. (2009) Rising capitalism, emerging middle-classes and environmental perspectives in China: A Weberian approach. The new middle classes: Globalizing lifestyles, consumerism and environmental concern, pp.119-142.
  25. ^ Economy, E.C. (2007) The Great Leap Backward-The Costs of China's Environmental Crisis. Foreign Aff., 86, p.38.
  26. ^ Li, H. (2006). Emergence of the Chinese Middle Class and Its Implications. Asian Affairs, 33(2), 67–83. http://www.jstor.org/stable/30172645
  27. ^ Ekman, A. (2015). China's Emerging Middle Class: What Political Impact? (p. 40). Paris: IFRI Center for Asian Studies.
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