China looks to boost middle class as it wraps up Xi Jinping’s anti-poverty drive

China looks to boost middle class as it wraps up Xi Jinping’s anti-poverty drive

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  • China’s ruling Communist Party wants to ‘significantly expand’ the number of middle-income earners by 2035 to continue strong economic growth
  • Boosting its middle-income group will also help Beijing implement its new ‘dual circulation’ economic strategy by unlocking domestic demand

A critical mission for President Xi Jinping over the next 15 years is likely to be doubling the size of China’s “middle-income” group after Beijing reaches its goal of eliminating absolute poverty next summer, analysts say.

The Communist Party has not specified the target in its 2035 vision – vowing only to “significantly expand the middle-income group” – but the message is clear among top policymakers: China must increase its middle class to avoid the middle-income trap, where a developing country’s growth stagnates because of structural obstacles that impede development.

Boosting the number of middle-income earners would also help the government implement its new “dual circulation” economic strategy that focuses on developing the domestic market to offset external uncertainty.

Officially about 400 million Chinese are categorised as middle income, which is generally defined by the National Bureau of Statistics as a family of three earning between 100,000 yuan (US$15,200) to 500,000 yuan annually, though the definition is not always consistent.

Demand for professional home cleaning services growing rapidly among China’s middle class

That represents less than a third of China’s total population. Japan counts two-thirds of its population as middle income and the US as about a half.

If China were to increase its middle-income population to near 60 per cent, some 800 million people would fall into the category, 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.

Vice-Premier Liu He, the top economic aide to Xi, wrote in the state-backed People’s Daily last week that the “expansion of middle-income groups has a fundamental role in forming a strong domestic market” and so China must “expand the middle-income group and strive to make per capita income grow faster than the broader economic growth rate.”

China’s large low-income group has the big potential to boost domestic consumption
Song Houze

After four decades of rapid development, China’s per capita gross domestic product (GDP) reached US$10,000 in 2020, but the wealth is not evenly distributed.

Income inequality in China is not only embarrassing for Beijing, whose socialist development model requires improving the lives of the working class but a strategic weakness, as it limits domestic growth and forces continued reliance on overseas demand to fuel its production.

Setting an explicit goal of doubling China’s middle-income group would unlock huge domestic demand, allowing hundreds of millions of Chinese to board an aeroplane for the first time and about 500 million people to gain access to a flush toilet, Liu Shijin, a former deputy director at the Development Research Centre of the State Council, told the China Economic Daily recently.

Song Houze, a research fellow at the Paulson Institute in Chicago, said increasing the number of middle-income earners would be a natural step after the government eliminated absolute poverty, which was defined as those with per capita annual income below 4,000 yuan.

“China’s large low-income group has the big potential to boost domestic consumption,” Song said.

China announced last week its remaining 832 impoverished counties had been lifted out of poverty, indicating the government was a step closer to eradicating absolute poverty, a goal set by Xi five years ago.

Though the Covid-19 pandemic has not derailed the ambitious campaign, it has revealed the fragility behind it. Premier Li Keqiang said in May that the country still has 600 million people earning 1,000 yuan or less a month and they were especially vulnerable to the economic fallout of the pandemic.

China could learn from former Japanese prime minister Hayato Ikeda’s Income Doubling Plan, which was introduced in 1960 to boost the per capita income and improve living standards, said a research team at the Shanghai University of Finance and Economics.

“Setting up a plan to expand the middle-income groups is necessary for economic development and social stability,” said Chen Xudong, associate research fellow at the university’s Institute for Advanced Research and one of the report’s authors. “A massive middle class is key to maintaining the current social system and order.”

Wang Yiming, a vice-chairman of the China Centre for International Economic Exchanges, a think-tank in Beijing, said the government could double its middle-income earners naturally if it can hit its broad economic growth targets in coming years.

Are you kidding? The middle class and I are not in the same universe
Shirley Feng

“If China’s average annual GDP growth rate in the next 15 years can reach five per cent, and residents’ incomes can grow at roughly the same rate, China’s middle-income group will double,” Wang told a forum in Beijing in October last year.

Despite the high-level push to increase middle-income earners, many Chinese say the term has little relevance to actual well-being or social status.

Wang Yuxuan, who lives with her husband and daughter in a small town in the northeastern province of Liaoning, said although her family income was above 100,000 yuan, she felt she was still among the “poor class”.

Shirley Feng, a Beijing-based journalist, said the typical characteristics of being middle income were having “a flat, car, savings and a personal life – and good educational resources for the child”.

But even though her monthly salary fell within the middle-income bracket, she said she could not relate.

“Are you kidding? The middle class and I are not in the same universe.”

Source: SCMP