What's happening to China's middle class?

China has seen a dramatic increase in the size and influence of its middle class, but a series of recent challenges are threatening its rise.

What's Happening to China's Middle Class? (Source: China Briefing)

Struggling with challenges

Faced with sluggish post-pandemic demand, Kelly Fang and her husband, the owners of a cosmetics business based in Guangdong province, are considering cutting staff for the first time since they started. “We are feeling a lot of financial pressure as our business is shrinking,” she lamented.

What’s more, Kelly Fang says sales this year are even worse than last year, even though China has lifted restrictions to prevent the spread of the virus. To make ends meet, her family has had to cut back on many unnecessary expenses.

“My child’s tuition, rent, and living expenses add up to more than $76,000 a year. My goal this year is to be able to pay all my bills. The reality is that the number of new families in debt will increase rapidly, due to failed investments or shrinking business needs,” Kelly Fang said.

Kelly Fang's cousin, a senior engineer working at a leading Chinese telecommunications company, said he is very worried about the possibility of being fired in the near future.

Jade Zeng, owner of a 70-square-meter three-bedroom apartment and two apartments in Shenzhen, said many of her friends had taken out bank loans to invest in real estate, but the continued crisis in the market has left many in dire straits.

Zeng and her husband owe 60,000 yuan ($8,245) in monthly mortgage payments, in addition to their son’s private school tuition. “We barely have any money left over every month,” Zeng said. The family’s total assets, she said, have dropped by a quarter since the start of the pandemic in 2020.

China has seen a dramatic increase in the size and influence of its middle class during the decades of reform and opening up. But in fact, some policies aimed at private enterprises are believed to have slowed the growth of the world’s second-largest economy. “This may have undermined the expansion of the middle class,” said Gavin Chiu Sin-hin, a former lecturer and associate professor at several universities in Guangdong and Hong Kong.

The expert also said that the aging population and declining birth rate also significantly affected China's labor force and social security, creating more "obstacles" to the growth of the middle class. "The decline of the middle class shows that the economy will find it difficult to escape the middle-income trap to become a developed country," he said.

The world's second largest economy has long been "obsessed" with the middle-income trap - a stage of economic development with stagnant income, preventing a country from joining the ranks of rich nations.

China has set a target of reaching the per capita income level of a middle-income country by 2035 – GDP per capita is expected to be at least $200,000. The Northeast Asian country is also in the process of moving from middle-income to high-income, with GDP per capita surpassing the $10,000 mark in 2020.

Economists from both the US and China have also warned that an aging population, coupled with economic pressures from the strained US-China relationship and the resulting decline in private investor confidence, are creating major obstacles to the growth of China's middle class.

"A heavy blow" to the middle class

A Chinese government labor official explained that the impact of the pandemic and the sluggish recovery of the global economy has led to widespread cuts in hiring, which means fewer new jobs in urban areas, which will also affect the middle class.

According to statistics, since 2017, China has had 400 million people with average income, equivalent to about 28% of the total population of 1.4 billion.

The group of businessmen, managers, doctors, lawyers and teachers... which are considered the main driving force of the economy, are facing new concerns, typically the growth of income is slowing down, even becoming stagnant. This is also a challenge for the path to prosperity of a country.

China’s aging population and declining birth rate are also significantly affecting its workforce and social security, creating additional “obstacles” to the growth of the middle class. (Source: AP)

Recently, industries have also witnessed a wave of salary cuts and layoffs in the context of the domestic stock and real estate markets falling into a deadlock, causing people to consider more carefully when spending. This is a bad signal for Beijing.

Many believe that only when China continues to promote the development of the middle class will this Asian country become truly attractive, making international investors believe that consumer spending will grow strongly and there will be abundant room for high-quality goods and services.

Job losses in high-income areas have also hit China's middle class hard.

According to the 21st Century Business Herald in April, 19 of the top 22 brokerages saw their average per capita wages fall significantly over the past year. The number of properties for sale by owner has surged in many Chinese cities, with 52,397 listed on Shenzhen’s secondary market in mid-May, up from 35,000 at the end of January, according to the Shenzhen Real Estate Brokers Association.

The People's Bank of China (PBoC) said that 70% of assets held by urban households - mostly middle class - are in real estate, leading to a worrying trend.

Yan Chao, 34, CEO of a Shanghai-based advertising company, worries that any health crisis like the recent Covid-19 pandemic or future geopolitical turmoil will surely hit many in China's middle class hard.

“If the relationship between the US and China continues to deteriorate, or if there is another pandemic or even a sudden war, the middle class will definitely be hurt, and the anxiety will only get worse,” said Yan Chao.

Not only China, the US is also struggling with the decline of the middle class. According to analysis by the Pew Research Center, the US middle class has decreased from 61% of the population in 1971 to 50% last year. According to Pew, the financial difficulties caused by Covid-19 have affected most low- and middle-income American families - with the average income falling by 2.1%.

“Wage growth in the United States, while strong, may not be enough to lift low-wage workers into the middle class,” said Harry Holzer, a professor at the McCourt School of Public Policy at Georgetown University in Washington. “College enrollment is also falling, which is detrimental to the future growth of the middle class.”

But the American middle class, according to Derek Scissors, a resident scholar at the American Enterprise Institute’s Public Policy Research Institute, is generally much wealthier than its Chinese counterparts. “Much of the Chinese middle class lives in cities where the cost of living is not much lower than in the United States,” he said.

Source: https://baoquocte.vn/dieu-gi-dang-xay-ra-voi-tang-lop-trung-luu-trung-quoc-243195.html