Middle-income earners seem to have little in common, except for being heavily taxed and under pressure.
By Pang Qinghui, Sun Chunyan, and Yu Xiaodong
When Japanese economist Kenichi Ohmae’s book, The ‘M-Shaped’ Society: Crisis and Opportunity of the Vanishing Middle Class, was translated into Chinese, many in China thought the allegory was a good way to describe what was happening in the country.
“The only difference is that China’s middle class is collapsing even before it has fully developed,” said Jiang Lei, editor of the book’s Chinese edition.
In Japan, argued Ohmae, the long-established middle class is disappearing, as it is absorbed into the upper and lower socioeconomic levels, with the large majority – 80 percent – moving down the ladder. But in China, a middle class does not yet exist to the same extent.
Cut in Half
Many attribute middle class stagnation to the past several years of skyrocketing housing prices and living costs. Between 2004 and 2010, for example, housing prices in Beijing alone nearly quadrupled.
Scholars point out that housing costs have siphoned off a very large portion of middle class income, and that these people can no longer afford stable and comfortable lives. According to data from the Ministry of Commerce, in 2009, retail sales/consumption amounted to 12 trillion yuan (US1.76tn). In the same year, a conservative estimate put the housing sales at between 5.7 and 6 trillion yuan (US835bn to US879bn); thus housing accounted for more than half of all consumption.
As he conducted research for his 2005 paper entitled, “An Investigation of China’s Middle Class,” Professor Zhou Xiaohong from Nanjing University found that home prices were not a big factor in influencing the living conditions of the middle class.
“But now,” he said, “it is probably the most important factor.”
“The result of these runaway housing prices is that the middle class is divided into those who bought real estate property earlier and moved up as values went up, and those who purchased housing later (at a price several times higher) and moved down the socioeconomic ladder,” said Professor Tang Jun from the Institute of Policy Studies at the Chinese Academy of Social Sciences (CASS).
In a recent online survey conducted by Sina.com.cn to get opinions on a property tax that is expected to be levied in the near future, about 50 percent of respondents supported the tax, while 48 percent opposed it. The divisions mostly fell along home ownership lines; most of those supporting the tax did not own a house and said the tax would bring down prices, and most of those opposed were homeowners.
But while the housing price kerfuffle may be the latest issue, it is probably not the last. Indeed, as China’s mostly non-existent middle class has dealt with rising prices, the gap between the rich and poor in China has become increasingly larger. The Gini Coefficient, a statistical tool used to gauge the disparity in wealth distribution within a country, increased from 0.25 in the 1980s to 0.38 in the 1990s. The figure has now reached 0.5, indicating a huge gap between the rich and poor.
Those caught in the middle are on the verge of either sliding downward or moving upward. This also explains why the Chinese public has failed to reach a consensus over a clearly defined concept of “middle class,” let alone a widely shared middle class culture.
Institutional Barriers
Academics have argued that the lack of a large, stable middle class is the cause of social friction. When the middle class is weak, they say, society tends to be divided into polar opposites, the poor and the rich, and lacks a cushion in the middle. The friction leads to social unrest.