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Dissecting China's 'middle class'
By Xin Zhigang (China Daily)
Updated: 2004-10-27 09:03

The talk of the so-called "middle class" in China has already gone beyond media reports, moving even into official documents.

A man walks past a billboard featuring two Chinese characters which reads "zhong chan," meaning "middle class" or "middle property." China's fast developing economy has put the emergence of affluent individuals and families into the spotlight.

It suggests that "middle class" is no longer an abstract concept in sociology but a strong force that could help reshape society as a whole.

Political sensitiveness in China means that "middle class" can be termed in many other ways - such as "middle-income stratum," "middle-income group" or just "middle stratum."

But it usually refers to a group of people with stable incomes who are capable of purchasing private houses and cars, and can afford the costs of education and holidays.

In fact, the emerging "middle class" in China carries special meaning for multinationals that are counting on the huge Chinese market to boost their growth.

That explains why stores featuring luxury brands such as Gucci, Christian Dior and Chanel have begun to appear in more and more Chinese cities. The Chinese Academy of Social Sciences (CASS) released a report earlier this year that suggested China's "middle class" accounted for 19 per cent of the country's 1.3 billion population by 2003.

Based on an annual growth of one percentage point, the "middle class" people in China is expected to make up for 40 per cent of the total population in 2020, the academy report said.

According to the academy's standard, families with assets valued from 150,000 (US$18,137) to 300,000 yuan (US$36,275) can be classified as middle class.

Meanwhile, the French bank BNP Paribas Peregrine estimated that the number of "middle class" households in China stood at 50 million in 2002, with each having an annual average income of 75,000 yuan (US$9,068) and assets of 310,000 yuan (US$37,485).

The figure is expected to rise to 100 million in 2010, with each household having an annual average income of 150,000 yuan (US$18,137) and assets of 620,000 yuan (US$74,969).

The official data finally came in early September as the National Bureau of Statistics announced that the first 20 years of this century will be an important period for the growth of China's middle stratum.

The bureau estimated that about 13 per cent of the country's urban households, or 24.5 million household with a total of 75 million people, will become middle stratum families in 2005.

The number is expected to amount to 25 per cent in 2010, indicating 57 million households with 170 million people will be classified as middle stratum.

Although the figures vary from each other, they point to an inevitable trend: there has been growing affluence in the world's most populous country, given its fast economic growth over the past two decades.

"People may not agree on the actual size of the middle stratum in China, but nobody can deny the fast emergence of a relatively affluent group in Chinese society," says Chang Xiuze with the Academy of Marco-Economic Studies.

He says China's per capita gross domestic product (GDP) has reached US$1,090, exceeding, for the first time, a per capita GDP of US$1,000, the so-called "economic growth threshold."

When a country's per capital GDP rises from US$1,000 to US$3,000, it will see a sharp increase in its middle stratum people, according to Chang.

He stresses that the expansion of the middle stratum is set to spur domestic consumption demand to ensure a more sustainable and healthy development of the Chinese economy.

Despite its robust growth, China's economy has been suffering from weak domestic consumption demand.

Economic significance

A migrant worker walks past an array of banners of foreign banks in Shanghai. Income disparity in China has widened greatly after two decades of economic reform. [newsphoto/file]
Over the past decade, the country's annual average consumption rate - the proportion of domestic consumption in GDP - has been about 59.5 per cent, far below the world average of 78 per cent.

What's more worrying is that the consumption rate has been declining sharply over the past few years amid sluggish growth in domestic consumer demand.

Given the huge purchasing power of the middle stratum, Chang says, their spending on cars, housing, tourism, education and entertainment will help cultivate new growth points in domestic consumption.

"The upgraded consumption structure will soon trigger a restructure in the country's industrial sectors to benefit overall economic development," he says.

As economists hail the economic contribution of the middle stratum, socialists are paying more attention to the political and social significance of the group.

They tend to see the emergence of the middle stratum as an important signal of maturity in Chinese society.

Li Qiang, a sociologist at Tsinghua University, says the expansion of middle stratum people is conducive to social development.

"Studies of social structure have shown that an olive-shaped society with the middle stratum becoming the backbone is always more stable than a pyramid-shaped society with wealth polarization," he says.

"That's because the middle stratum, generally speaking, is the most important stabilizing force in any society."

On the one hand, the middle class can help ease contradiction and even conflict between the upper stratum and lower stratum.

On the other hand, the moderate and conservative ideology of the middle stratum tends to be accepted as the mainstream ideology of a society and thus helps safeguard social stability by forcing out extremism.

Li goes further to point out that the existence of a vast middle stratum will also facilitate the upward movement of individuals into higher strata.

In sociology, the upward movement is considered a "safety valve" of social stability.

"With China's sped-up industrial upgrade and urbanization bid, there will be more opportunities for the upward movement of people into the large middle stratum," he says.

Even top Chinese leaders have recognized the growing importance of the middle stratum.

"Bearing in mind the objective of common prosperity, we should try to raise the proportion of the middle-income group and increase the income of the low-income group," said former Secretary-General of the Communist Party of China (CPC) Jiang Zemin in his report to the 16th Party Congress in November 2002.

Sociologists say the CPC's call reflects the authorities' determination to foster a large middle stratum in a bid to achieve the ultimate goal of building a well-off society in an all-round way.

Measures ranging from giving higher status to the private sector in constitutional amendments to protect private property better are all part of the efforts, they say.

Real picture or journalistic hype?

Thanks to favourable policies, more and more people with good education backgrounds and brains will work their way into China's middle stratum, according to some economists and sociologists.

They have made a specific analysis and clearly defined what they believe will compose the Chinese middle stratum.

Five categories of people are expected to represent the new middle stratum: entrepreneurs in high-tech companies; managerial staff working in foreign firms in China; middle and high-level managerial staff in State-owned financial institutions; professional technicians in various fields especially in intermediary firms; and some self-employed private entrepreneurs.

The rosy picture, however, has been criticized as "journalistic hype" by other sociologists and pundits, who warn that the over-optimistic prediction betrays the real situation in China's development.

"The so-called Chinese middle class is nothing but a myth and a bubble conjured up by some media organizations and researchers," Li Chunling, a CASS researcher, recently told the China Newsweek magazine.

In late 2001, Li and her team conducted a study of 5,860 people aged between 16 and 70 in 12 provinces and municipalities, including Beijing, Shanghai, Zhejiang, Shandong, Guizhou and Inner Mongolia.

Despite the lack of a real definition of "middle class," her study set out four criteria in the following categories: profession; monthly income; consumption and lifestyle; and subjective identity.

The results of the study suggested that there are just over 35 million people in the country who meet all four criteria.

"The notion of 'middle class' did not emerge in China until the mid-to-late 90s," Li said.

"How come so many people are now considering themselves middle class after such a short period of time?"

The researcher warned that false prospects for social development could overshadow some pressing problems such as the widening income gap and soaring unemployment.

Income disparity in China has widened after two decades of economic reform with the Gini coefficient - an international measurement of income disparity - having risen to 0.39, close to the international alarm level of 0.4.

A zero Gini coefficient represents perfect equality and 1 indicates a complete monopoly of wealth by the privileged.

Hurdles ahead

Currently, more than 30 million people still live in poverty in rural areas, while there are at least 20 million needy residents in Chinese cities.

Song Linfei, president of the Jiangsu Provincial Academy of Social Sciences, points to a fact that the country's 786 million farmers, who account for more than 70 per cent of the country's total population, still suffer from low incomes and poor purchasing power.

In 2003, Chinese farmers' per capita income rose by a meagre 4.3 per cent to just 2,622 yuan (US$317).

Statistics suggest that China's rural population buys only 39 per cent of goods and whose deposits account for a scant 19 per cent of individual bank savings each year.

What's worse, shrinking farmland acreage and a tight labour market in cities all threaten further growth in Chinese farmers' revenues.

"There will be no real middle stratum in China if most farmers are excluded from the group," Song says.

Sociologist Li Peilin believes that whether a real middle class can emerge in a country heavily depends on some key economic and political factors.

The middle class cannot become a mainstream group unless the country's urbanization rate reaches more than 50 per cent and the output of the tertiary industry accounts for over 50 per cent of its GDP, he says.

As for China, its urbanization rate now stands at just under 40 per cent and the output of the tertiary industry now makes up for only 32 per cent of its GDP.

Meanwhile, China's social and political conditions also concern the growth of the "middle class."

"All in all, the socioeconomic environment for fostering the expansion of China's middle class is still in its preliminary stage," Li says.

"It will be hard for the middle class to become the backbone of society unless these conditions are mature."

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