The Rise of the Middle Class in China

In recent times, there has been an interest in China’s growing middle class with one report claiming that its size is 400 million people or about 140 million households.  The same report mentions that “76 percent of China’s urban population will enter the middle-income bracket by 2022.”  Based on a McKinsey report, another article expects that China’s middle class will reach 550 million people or one-and-a-half times the US population at about the same time.

This is in stark contrast to the trend in other major economies.  For instance, in the United States, Senator Krysten Sinema, a Democrat from Arizona, has categorically refused to support the new reforms that seek to “continue child tax credits for the middle class, expand child care, fight climate change and offer free community college.” In India, the middle-class seems to be fragmenting into either the rich or the poor; a PEW Research report released in March 2021 outlines that “the middle class is estimated to have shrunk by 32 million.” 

Given the role of the middle class in technological, innovation, and economic transformation, it is important to understand its development. China is a case-in-point and in this article, we explore the key events that led to its emergence and growth.

The Tale of Mao Zedong

Before the rise of Mao Zedong, the founding father of the People’s Republic of China, there existed a large stratum of classes within the social hierarchy that was separated between the urban and rural. The urban hierarchy ranged from the ‘big bourgeoisie or the capitalists who allied with the Nationalist Party or the Kuomintang who were in power in the first half of the twentieth century, to the workers and unemployed. The rural stratum focused on the relationship between the peasants and the landlords. Calculations by Chunlong Lu (2007) found that in this period, the middle class was approximately 7% of the population, which mainly comprised civil servants, professionals, and self-employed labourers. 

During the Maoist era (1949–1976), the presence of the middle class remained limited, or even, declined. The socio-economic structure was de-stratified and limited to three main categories; the peasants, workers, and intellectuals. Interestingly, even the intellectuals bore little resemblance to the Western notion of the middle class (Morreale et al, 2018) since the primary goal of the Chinese Communist Party (CCP) was to eliminate the bases of private property and instead move towards a classless society. The consequence of these policies resulted in the mass reduction of private enterprises, which were seized from the nationalists, reducing them to just 869 in number by 1956.  Most enterprises were transformed into state-owned enterprises under the direct control and administration of the central government (Chunlong Lu).

A notable aspect of this time was the fall of the petite bourgeoisie, who were the key elements of the middle class for the Nationalist Party. Under the new government, this class of small-scale merchants and businesses were demoted to being workers within cooperatives; for instance, self-employed merchants being made employees of handicraft cooperatives while college graduates, managers and professionals lost the privilege of the middle-class and were demoted to the working class, mostly through political force.

The final nail in the coffin was the homogenisation of consumption patterns and lifestyles, which was enforced through the rationing system and facing political repercussions for consuming over what the government allocated. 

These factors led to the systematic breakdown of the middle class, which, before the revolution, many flaunted through exhibiting their wealth with opulent acquisitions such as properties and cars.

The Reformation Era of Deng Xiaoping

Following the death of Mao, came the time of reforms.  Deng Xiaoping (1978–1989), unlike Mao, was open towards economic liberalisation and market reforms.  Deng argued that “Socialism and market economy are not incompatible.” This set the tone for a new age in China. To many, it was a breath of fresh air after the brutality of the Cultural Revolution and the ultra-Maoist “gang of four” uprising. 

The period saw an opening in the otherwise isolationist China with the rise of the “three stages” policies from 1978 to the early 2000s. The first stage witnessed the rise of individual businesses to solve the problem of rising youth unemployment, which was on account of students who returned to urban centres after being displaced to the rural areas by the Cultural Revolution. 

The second stage was to differentiate individual businesses from rising (large) private enterprises; the latter could now exist without being labelled as enemies of the state thereby going against Maoist doctrines. At the same time, the government decided to issue the “Tentative Stipulations on Private Enterprises”, which oversaw with an iron grip the activities of the private sector.

The final stage was to encourage the development of the private sector and in turn the private economy, which included the opening of China to foreign trade and investment, and setting up special economic zones.  As a result of these three stages, the social status of the private sector was re-established in China. 

With the rise of foreign direct investment and increased college education, a new generation of workers and professionals emerged.  Education caused a paradigm shift within the development of the middle class in China when graduation rates tripled between 1999 and 2003. Thus, stratification began mainly in the foreign-run sector where wage disparities between those employed by domestic and foreign enterprises appeared.

The era of Deng Xiaoping was therefore a period where China returned to its initial hierarchy of social order.  The catalyst was the new synthesis of socialism and the market system, which gave space for the rise of the middle class whilst maintaining political stability.

Xi-Jinping’s Consolidation

In 2013, Xi-Jinping emerged as the Chinese President.  The CCP consists of numerous different factions that have different approaches towards economic policies and other decisions. Xi belongs to the Shanghai faction, which “has advocated economic liberalism and pushed the development of China’s eastern coastal provinces” (Delany (2010).  This faction is also supposedly politically inert without strong ties towards any greater ideology. 

The cornerstone of Xi’s policies is the continuation of Dengism, including stringent oversight with regards to the private sector and a smoother transition for urbanization.  It is important to understand that urbanisation in China is a strategy that aims to enable the transition of people from rural to urban areas by providing “ urban public services, including residential security, social security, and compulsory education for children(Tanaka, 2015). Moreover, urbanization would also result in the growth of the middle-class, “creating a consumer market larger than the populations of the US and European Union combined, and giving it huge economic leverage on the international stage.  For a large part, Xi used neoliberal economic reforms championed by the west such as free trade and globalisation to his advantage, resulting in skirmishes in the form of trade wars. In 2018, former US President Donald Trump levied new tariffs on Chinese imports of 25% for certain categories and 15% on various other goods. 

Future Challenges

The rising wave of the middle class in China is yet to slow down but these numbers do not reveal the challenges ahead.  The widening income inequality is likely to cause a divide in Chinese society which will be harder to bridge.  However, the Gini coefficient which measures the inequality ranging from 0 (perfect equality) to 100 (perfect inequality) has shown a decline in China ranging from 43.7 in 2010 to 38.5 in 2016 (World Bank, 2016). China has also taken on the monumental task of eradicating poverty.  According to data by the Asian Development Bank (ADB), the current rate stands at just 0.6%, well below most nations in the world.

Another challenge to the continuing process of urbanization and increasing the middle-class is the challenge of sustained economic growth.  China now faces the notorious income trap whereby it will be “unable to compete with other nations either in the knowledge economy – typically the province of high-income nations – or in the low-wage economy it has left behind.” However, once again, when it comes to innovation and technology, China is emerging at the forefront in areas like 5G and Artificial intelligence (AI).  In the latter case, it is now a major hub for the largest AI start-ups, research papers and talent with one report estimating that it will create 169 million jobs in China by 2037.

Recently, the emerging power of large private enterprises is also pressurizing the Chinese government to tighten its grip on the private sector. A notable case was Jack Ma’s Alibaba, where the billionaire after making comments towards the banks resulted in the stocks of Alibaba’s parent company, Ant Group collapsing, wiping out nearly $76 billion off its value, allegedly for breaking anti-monopoly laws. The same question has arisen as to whether the Evergrande crisis is also a controlled explosion orchestrated by the government.

Finally, the drive for democratic reform with a larger middle class especially from the younger generation may induce political instability in China.  A recent study shows a rise in support for democratic changes which have escalated conflicts in Hong Kong. However, many Chinese are still not ready to lose the social stability the government has imposed.

Despite the many uncertainties facing China, it is important to explore Chinese economic history from the decimation of the middle class by Mao, to the reforms ensured by Deng Xiaoping and consolidation by Xi-Jinping.

Further Readings

Morreale, J.C., Shostya, A., & Villada, M. (2018), China’s rising middle class: A case study of Shanghai college students, Journal of International Studies, 11(2), 9-22. 

Tanaka, Osamu (2015), Economic Reform and Economic Policy of the Xi Jinping Leadership, Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol.11, No.1, March.

Lu, Chunlong (2007), The Middle Class and Political Change in China: Chinese Middle Class’s Attitudinal and Behavioral Orientations Toward Democracy”, Doctor of Philosophy (PhD), dissertation, International Studies, Old Dominion University. 

Delany, Dominic (2010)

Xi Jinping, factionalism, merit, and dealing with China’s political leadership

China Power Team (2021)

“How Well-off is China’s Middle Class?”