by Tzy C. Peng
The middle class based on family wealth is a new social status in China, created under economic reform policies in the late 1970s. This prospering
and expanding middle class is rapidly becoming the mainstream of Chinese
society. Their hopes and aspirations will have a significant effect on
the future of the world in the 21st century.
In my 6-week trip (March-May, 2001) to China, I had many opportunities to engage in
casual conversations with my relatives and friends (Age 20 -
60) about economic situations in China. Just before I came back to the
U.S., I had a 2-hour dialogue after dinner with 4-5 people on the idea of
middle class in China. Among them, one was a college professor, one was a
senior engineer, and one was a senior economist (retired). All ordinary
people with no special connections to current government officials. As a
result of that dialogue, some description of this Chinese middle class are
made more clear, and may in some way help us to view the real China, not
by its ideology but by the economic reality. What follows is a summary
of that discussion on the "Middle Class in China."
What is the annual income of the middle class?
It is hard to define because the economy is so fluid in China that today's definition may be inappropriate for tomorrow. However, the best
estimate out of a consensus among friends is probably 20,000 - 80,000
yuant. "Yuan" is the currency unit of RenMinBi (RMB) at about 8.3 to 1
ratio to the US dollar. Thus, the Chinese middle class
earns about $2,400 - $9,600 annually in the Greater
Shanghai area of 16
million people. Of course, Shanghai is the Chinese equivalent
of New York city in the U.S. The middle class of a lessor city or a small
city will be proportionately less. Yet, the term "middle class" is still
appropriate in terms of the local economic conditions for those cities.
Compared to the middle class income, the well-known college professor's
salary is 10,000 - 20,000 yuan ($1,200 - $2,400) per year. The low end
of labor wages are about 2,500 - 5,000 yuan ($300 - $600) per year, and
the high end of entrepreneur's earning can be 1,000,000 yuan ($120,000) or
more per year. There are not many super-rich people around, but recent
indications are that the number can be in the hundreds, even in the
thousands . For many, both spouses work and often have extra
income from the side jobs.
In addition, people employed by private business, especially a business jointly owned by Chinese and foreign
investors can usually double or triple their wages for the same level of skill. This provides a
convenient partial solution for many laid-off skilled workers from the
downsizing state-owned-enterprises.
What is the percentage of the middle class in terms of the income-earning people as a whole?
It has been estimated that the middle-class percentage is 20 -30% in the Shanghai area. Again, this number can vary, sometime significantly, from
region-to-region and from time-to-time. However, there is a degree of
optimism among the populace that unless another social upheaval occurs,
the future trend of the middle class is continuing upward growth.
This optimism may explain a current phenomenon prevalent in China, which
is not readily understood by outsiders, especially the western analysts,
to maintain the societal stability even with some suppression of political
liberties. In addition, this desire of maintaining stability does not
always come from the top government officials, although the leadership
will certainly do everything to hold on to their power. More
significantly, this desire comes from people at the grass roots who for
the first time see hope for reaching wealth and prosperity at their level,
at least economically. Ask the question of "who wants to be a
millionaire?" in today's China, you will see millions of hands going
up. It appears that the strong motive to get rich and have a good life is as desirable in
China as it is in the United States.
What is life like for the Chinese middle class?
Remember what life was like during the great depression in the US around the early 1930s? History tells us that there was 25% unemployment. Many
people lived on make-work jobs created by the government. Hardship of
various degrees existed for most households. Everybody, including
children, had to pitch in to contribute to the family income or simply do
away with all non-essential expenses, particularly those of entertainment. Such harsh living conditions in America during the great depression were
conditions of everyday Chinese during the disastrous cultural revolution
(1966-76) in China. Of course, the consequence of the failed cultural
revolution included not just economic but also political
and spiritual aspects of life as well.
Compared to the living conditions during the cultural revolution and immediately thereafter, today's life in China, as far as ordinary Chinese
are concerned, is nothing short of a miracle. Many people in their 50s
and 60s remembered and described to me how the improvement progressed in
the last 25 years or so. In their own words, an average family had:
- From 1977 to 1984, one small room without telephone, water
supply, cooking facilities, and indoor toilets, but did have
an old radio, a watch or clock, bicycles and some books,
- From 1985 to 1993, two or three small rooms with water
supplies, black/white televisions, gas stoves for cooking,
and most importantly, indoor toilet facilities. They also
had washing machines, refrigerators and high fidelity record-playing systems.
- From 1994 to 2001, 3-6 medium size rooms in suburban
highrise apartments with modern gas ranges, washing
machines, large refrigerators, color televisions, full bath rooms
with flushing toilets, stereo sound systems, regular and mobile
phones, personal computers, with e-mail and website services.
In terms of public facilities, typical large or some medium cities are equipped with buses, subways, and streets full of taxi-cabs. Private cars
begin to appear in increasing frequency. Meanwhile, bicycles and
commercial tricycles are being restricted on main thoroughfares
and are disappearing. Public toilets are sanitized. Street venders, still
numerous, are organized into designated stables.
Inter-city and inter-province travel are provided for by high speed highways, railways, and airlines. The newly built high speed highways are
similar to the US Interstate, are mostly toll roads for self-financing.
Railways are mostly double tracking allowing faster speed and more
frequent schedules. Trains are electrified and are generally fast and
clean. More than a dozen national and regional airlines are operating.
Purchasing an airline ticket no longer requires "official connections".
What is next? For an average family, people are looking for up-to-date
air-conditioners, computers with DVD accessories, cell phones, private
cars, and a private villa with a garden. In addition, the recent trend
is toward vacation travel either domestic or abroad. Many Chinese are now
beginning to understand what "tourism or being a tourist" means. For
major holidays [Chinese New Year, Labor day (May 1), and National day
(October 1)], tickets for transportation and hotel reservations have to be
arranged one week ahead of time. Otherwise, the vacation
encompasses staying home and watching TV. How do you like that?
What does the family budget look like?
The average estimated family budget look like this: Accommodations, 10-40%; food and clothing, 20-40%; consumption, 5-10%; education, about
30%; and rest, recreation and travel. 35 - 0%. As you can see, on the
high end, even with zero recreation, the figure add up to 120%.
Obviously some adjustments need to be made. So, some explanation is in order.
First of all, these budgetary numbers are at best personal estimates, designed only to yield some insights into how people spend their money.
Please, don't take it too seriously.
Secondly, these numbers comes from a consensus of 5-6 families. They are by no means a yardstick to measure society as a whole. However, if these
numbers interest you, a more detailed and broader survey should be
conducted It is best to leave these systematic surveys to government
officials or well-funded private institutions with adequate resources.
Thirdly, the variation of a family budget is enormous from household to
household depending on the makeup of the family, particulars on personal
interests, habits, and individual/business burdens of family members.
Having said all that, some general characteristics about current Chinese
families, especially the middle class are worth mentioning.
The previous generation, age 60 and up, has done nothing but save, save, save to get through difficult times in their days. Many of them have
acquired a nice tidy sum either in bank deposits or in valuables. They
are old, and are not accustomed to spend, spend, spend philosophy, So
their accumulated wealth is likely to be transferred to their next
generation who are in their 40-60s.
The next generation (age 40-60), relatively speaking, have suffered much with their parents, but are now prone to the idea that they deserve some
fun and enjoyment in life. So they are more apt to spend not only their
own money but also the expected inheritance from their parents. That
inheritance is an extra-income to them, and a convenient subsidy should
they spend beyond their own family income.
This is also the generation that has lived under the official one child policy. Unlike traditional Chinese family with 3 or more kids, the one
child policy allows the only child to receive 3 or more times the money
for his/her needs or wants. Thus, the current generation (age 10-30)
have huge potential financial resources to draw from, and they are making
most of it from their willing parents and grandparents.
The current generation, again relatively speaking, have not suffered hardships or poverty, and a large majority of this generation believes in
enjoying life to its fullest by the spend, spend, spend philosophy until
the financial well runs dry. Even then, they think that their parents, or
grandparents, will always come to their rescue and bail them out.
So this is the reality which explains partially the strange phenomena why people often spends beyond their means. Young people readily spend large
sum of money in expensive restaurants and high cost recreation facilities. Young adults are very apt to spend 1,000 or more yuan for a banquet with
friends.
I also happen to know from my relatives (age 40-60) that the
age 10-30 group is counting on their parents to come up with at least
15-50 thousand yuan for modern housing plus household items when they
decide to get married. In the mean time, they spend whatever they earn on
having a good time. I do hope I am wrong on this information!
The question now is how long can this kind of generation-transfer funding
sustain itself? Or put it another way, how long will it be
before the financial well of the older generation runs dry? When the reserve wells
do run dry, can the 10-30 generation find a means of making a living?
I do not have the answer to this question, but I do know that it would be in everybody's interest, indeed to the world's interest to make sure that
the long economic growth at 6-9% annually continues for at least another
generation. The reason is simple: when 1.3 billion people are not
starving, they generate wealth which would be beneficial to raise the
standard of living for the Chinese and increase the stability for the
world as a whole. This scenario would work in my opinion if two
essential conditions are met.
One, there is no sharp population growth in China so that the burden of sustaining a good living is contained at a
manageable level. This condition has been essentially met by the one-child policy. In fact, the
policy which was enforced by government in the beginning, appears to have
gained momentum by people embracing it on their own. This is not because
of brain-washing of any kind by the government, but by the human desire to
reduce their burden of raising children when the standard of living is
high. This is evidenced in all western countries as well as Japan. The
population growth has been going down for years in Europe and North
America, precisely because living is so enjoyable that people, especially
the young generation, are not willing to sacrifice their good and
independent life-style for the burden of a parenthood.
Of course, the desire to have children always exists. But having fewer children, or even
just one child is an established universal fact when the living standard
is high. China is no exception. Today, the affluent 10-30 Chinese
group, the new middle class, do not want more than two children generally.
Two, there must be some evidence that the annual 6-9% growth rate is
sustainable. We have only circumstan-cial evidence for that. After an
extensive study using both Chinese and Western sources, Wendy Liu
concludes that the economic and even political liberalization are on-going
and have no sign of reversing the trend. Richard Ernberger of Newsweek
International and Kenichi Ohmae of Japan Times wrote in
their recent articles that the Chinese economy shows no sign of
retreating. The coming prospect of joining the WTO should further
encourage, not discourage the continuation of an open market in China to
the world. Unless something unforeseen occurs, there is every optimism
that the economic growth in China would continue, and that the middle class
of China would also likely grow and become more important in influencing
China's national policy as times goes forward.
Finally, if the expectation of the Chinese middle class comes true, then it is important for the world to know and
understand the mindset of this middle class in order to deal with them in the future. Here again, I don't
pretend to know more than anybody else who may have a better
understanding of Chinese culture and history. However, being born and raised in China
until age 22 and in touch with 10-30 generation in China, I do believe
that the following statement may be appropriate.
Today's middle class in China demands respect and equal treatment. They have acquired much self-esteem out of their own effort for personal and
national achievement. Increasingly, as their standard of living is being
raised, the sense of individual significance within the society is also
being embraced and accepted. They are open-minded and actively seeking
opportunities to become a participant on the world scene. At the same
time, they are learning about colonialism and imperialism from history.
They have not forgotten the fact that historical injustices and atrocities
like the Nanjing Massacre are for a just resolution. Finally, they are
once again turning to the essence of the Chinese culture that declares
"peace with justice based on the universally accepted Golden Rule for
human society is the principle foundation of making friends and
maintaining world peace".
About the author:
Dr. Tzy C. Peng, a retired aerospace scientist since 1992, has been
contributing articles to Chinese American Forum (CAF) since 1985. He has served as a voluntary CAF officer and primary donor since 1992. He is the current Chairman of
the CAF Board and the managing editor since the CAF publishing operation
relocated from Washington, D.C. to St. Louis County, Mo. in 1997 and later
St. Charles County, MO in 1999.
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