No.56, China’s Emerging Global Middle Class

Gustafsson, Bjorn; Sicular, Terry; Yang, Xiuna
Published: 2016/11/30 21:17:08    Updated time: 2016/11/30 21:17:08

Abstract: This paper aims to throw new light on the emergence of the Chinese economic middle class using data from the China Household Income Project from 2002, 2007 and 2013. The approach is to define “middle class” as having an income high enough to not be regarded as poor if living in a high income country but also low enough for being regarded as not rich living in such a country. We find that between 2002 and 2013 China’s population structure was transformed from a pyramid shape with a majority having rather low income and declining numbers at higher incomes to a more olive shape as the middle class emerged. In 2013 according to our definitions a third of China’s urban households were middle class in contrast to only a small minority of the rural households and rural migrants living in urban areas. A simulation shows that if household incomes grow by 6.5% per annum to 2020 uniformly for all households in China, the middle class would almost double and a majority of urban residents would be classified as middle class in 2020; however, only 13 percent of rural inhabitants would in 2020 be classified as middle class. In the paper we also examine the characteristics of middle class versus lower income persons, for example, location of residence, education, Communist party membership, and savings rate.
Keywords: China, Middle class, Income

 Authors:

Björn Gustafsson (Department of Social Work, Göteborg University)

Terry Sicular (Department of Economics, Social Science Centre, University of Western Ontario)

Xiuna Yang (Program Officer, China Development Research Foundation, Beijing, China)

 

1. Introduction

One of the largest global changes in this millennium is the substantial increase in the number of households and persons in China with lives quite similar in economic terms to those in the developed world. Most Chinese households no longer have to worry about how to meet daily expenditures and most have savings for a rainy day. Most own their home, and a growing number own a car and can afford to take regular holidays away from home. This change shows up clearly in studies of the worldwide income distribution. Milanovic (2016), for example, reports that the largest relative gains in real per capita income by global income levels between 1988 and 2008 took place at the middle and at the very top of the world income distribution. The gains in the middle are to a large extent the result of recent changes in China. In contrast, income growth was much lower in the segments between the middle and top, reflecting the slow income growth of middle class households in rich countries.

This paper aims to throw new light on the emergence of the Chinese economic middle class. The approach is to define “middle class” based on the level of a household’s disposable income. We define “middle class” as having an income high enough to be regarded as not poor if living in a high income country, but also low enough to be regarded as not rich in a high income country. This approach allows us to consider the Chinese middle class with an external lens, relative to notions of middle class in the developed world, which we believe is ultimately the long-term objective of China’s development process. As a first task we study the growth of the Chinese middle class from 2002 to 2007 and then to 2013. This we do for China as a whole, and separately for urban residents, rural-to-urban migrants, and rural residents. As a second task we simulate how the size of the middle class will develop to 2020 under the assumption of uniform income growth of 6.5 per cent per annum. The results of this second task allow us to evaluate the extent to which China’s population will attain the ranks of the developed middle class in the medium term. The third task for this paper is to investigate to what extent middle class households differ from those with lesser means. This we investigate using detailed information in the survey for 2013.

Needless to say, the emerging middle class in China has been the subject of writings by Chinese researchers, most of whom lean towards the long tradition of class analysis in the field of sociology In contrast, attempts in China to map the middle class based on data on analysis of household disposable income or consumption are few. In our literature research we have come across only three: Yuan et al. (2012) who, using CHIP data for 1988, 1995, 2002 and 2007, classified a rural household as belonging to the middle class if its per capita daily expenditures were in the interval from 4 to 20 PPP US$. Using this definition the authors found that the middle class in rural China grew from 3 percent in 1988 to 53 percent in 2007. Bonnefond et al. (2015) used data from the China Health and Nutrition Survey (CHNS) for years 1989 to 2009 to study the urban middle class using four different definitions, giving some priority to the alternative of setting the lower line at 10,000 yuan per year and the upper line at the 95th income percentile. A cluster analysis for 2009 using household variables indicates that the urban middle class is composed of a significant higher proportion of households whose head belong to the professional and technical worker category, the administrative and executive category and the office staff category. Somewhat more than two fifths of the households were pensioners.1

The third study is the one most similar to ours. Different from the two previous mentioned, Chen and Qin (2014) studied China as a whole. Those authors used CHIP data for 1995 and 2002 and data from China Family Panel Studies (CFPS) for 2010 and 2012. Households with consumption expenditures in the range USD PPP 10 to 20 per person per day were classified as upper or global middle class. According to this definition the Chinese middle class increased from 1 percent in 1995 to 13 percent in 2012. Not surprisingly, the authors find that the proportion households classified as middle class was highest among urban residents having urban hukou, followed by migrants living in urban areas and finally rural residents.

Turning to results we find that in 2002 middle class households in China constituted a very small minority, only 12 million persons. Since then, however, the growth in the size of the middle class has been rapid and according to our definitions 254 million persons in China belonged to the middle class in 2013. In the same year a third of urban persons were middle class, in contrast to only a small minority of rural and rural-to-urban migrant households. The middle class household differs from households with lesser means by having a higher savings rate. We show that due to economic growth, by 2013 most members of China’s Communist party had become middle class. Assuming that household income will growth with 6.5 percent per annum we project that the Chinese middle class will number as many as 509 million in 2020.

In the next section we discuss how the term “middle class” has been used by policymakers in China and academic research on China. Different from most of the other literature on China’s middle class, our definition of “middle class” takes a global perspective. Here we follow in the footsteps of some literature on the international distribution of income, which we review in Section 3. Section 4 discusses the data and our operational assumptions. Section 5 reports our findings on the emergence of China’s global middle class from 2002 to 2013; section 6 presents an analysis of the growth of China’s middle class over time, with projections to 2020. In Section 7 we examine the characteristics of China’s middle class households and individuals in comparison to those living on lesser means. Section 8 sums up the study and draws conclusions.