The Formation and Influence of China’s Middle Class

Until a little more than 50 years ago, China was a hierarchically based society where your class or status was determined by your ability to accumulate wealth and influence others. This was reflected in ancient Chinese society, during the time of Confucius, where there existed four levels of Chinese society:

  1. The Shi, or scholars, who achieved bureaucratic rank due to their knowledge or relationship with the emperor. This class of society had fame and fortune and exercised bureaucratic control over social resources;
  2. The Nong, or farmer who, as a landholder, produced food and also was a source of tax revenue for the rulers. They were held in high regard by both the ruler and the citizenry;
  3. The Gong, or craftsman, who produced needed goods, and whose esteem was slightly below the nong;
  4. The Shang, or merchants and traders, and were considered the lowest level of society because they did not produce anything, but made money off the goods of others. They were largely despised during the time of Confucius.

confucius2

Later portrait of Confucius,
from the provincial museum of Shandong, China

Confucius taught that a hierarchical society created political and social harmony. This was extremely important during a time when rulers generally governed through succession, and dissatisfaction among the populace could result in a revolution. In addition, the citizenry also supported the teachings of Confucius and regarded his teachings as both an ethical and philosophical system that taught them how they could improve themselves through personal and communal endeavors. The harmony and political stability espoused by the teachings of Confucius was therefore supported by both the citizenry and the Chinese rulers. For the next 2,500 years Confucianism became the official ideology of China, was taught in schools, and was integrated into Chinese culture.

All that changed in 1949 when Mao Zedong came to power. Mao enacted land reform, which seized land from the landowners. Private businesses disappeared as four million non-state-owned entities were systematically dismantled. China overnight became a classless society and the teachings of Confucius were banned from all schools.

With a lack of economic incentives for individuals, the Chinese economy, largely based on the former Soviet Union, fell into disarray. Domestic consumption, except for trade with the former Soviet Union and its satellites, remained economically unresponsive until 1979 when Deng Xiaoping initiated economic reforms throughout China. Deng declared “to get rich is glorious” and, from this time forward, there was an immediate wave of personal entrepreneurship and the gestation of social stratification within China. No longer was the state the sole beneficiary of one’s labor. Individuals could now own businesses and directly benefit themselves.

For the next 21 years China experienced unparalleled economic growth, and social stratification within the population continued. The government, once weary of an emerging multi-class society, could no longer ignore the fact that individuals now had increasingly significant economic and sociopolitical power. They realized that, unless they established policies to address this new social stratification, especially for the fast growing middle class, social and economic instability might occur. The government, fearful that social dissatisfaction could eventually lead to another Tiananmen Square, acted to address major sociopolitical issues. Therefore, in 2000, Jiang Zemin, Secretary General of the Chinese Communist Party (CCP) officially indicated that the CCP would not only represent the interests of the working class, but would also represent entrepreneurs, intellectuals, and technocrats, largely the middle class within China.

But who exactly constitutes the middle class? The answer:  the definition of middle class varies widely, both in the U.S. and internationally. For example, in the U.S., one source has defined middle class as individuals making between $25,000 and $100,000 per year. Max Weber, one of the founding architects of sociology, defines middle class as a class of professionals or business owners who share a culture of domesticity and sub urbanity and a relative level of security against social crisis, in the form of socially desired skill or wealth. In other words, someone is in the middle class if they are a professional and are relatively immune to economic downtowns. However, I believe the best definition of middle class comes from Dennis Gilbert in his book The American Class Structuremiddle class persons commonly have a comfortable standard of living, significant economic security, considerable work autonomy, and rely on their expertise to sustain themselves. The Chinese definition of middle class doesn’t differ markedly from this, and defines middle class as a combination of one’s income, occupation, and education.

The Chinese middle class is generally thought to comprise 214 million people, of which most are entrepreneurs, small business owners, large farmers, government officials, lawyers, academics, and media personalities. Merrill Lynch projects that by 2016 the middle class will grow to 350 million people or 32% of the adult population. McKinsey further projects that, by 2025, China will have a middle class comprising 520 million people. It’s also important to note that most of the Chinese middle class are self-made and not the result of government patronage.

Contact with the West is also responsible for changes within Chinese society, especially within the middle class. One reason is that, as China’s middle class continues to grow economically, they’ve increasingly adopted a more Western point of view wrapped within their cultural heritage. They admire the West, and want to emulate our lifestyle as best they can within the sociopolitical confines of present-day China. In addition, a great many Chinese have been educated in Western countries. Students returning to China from the West, over a period of time, frequently seek lifestyle changes as well as greater economic reforms within China. As a result, the middle class Chinese has increasingly put pressure on the government to act in a manner more responsive to their needs. These efforts have included lobbying against corrupt officials as well as putting pressure on the government to lessen the state’s monopoly of key industries.

The growth of the middle class within China has proven to be a great benefit to both sides. As the middle class within China continues to grow, so has China’s economy. The middle class has, and continues to be, important to the Chinese economy. For example, in 1990 there were 240,000 cars in China.  In 2009 there were 26 million cars. In 2003 there were 3 million credit cards issued within China. In 2008 there were 150 million credit cards issued in China. This domestic consumption and growth was largely fueled by the middle class.

The importance of the middle class is not lost on the Chinese government. Increasingly, the political and economic influence of the middle class is being taken seriously. Since 2000 the Chinese government has viewed the Chinese middle class as a catalyst for the economy. With their ability to invest in domestic products and services, along with their ability to attract foreign investment, the middle class is critical to China’s future and its efforts at converting itself from an export-driven economic model to a domestic consumer driven economy. As this happens, the political and economic influence of the middle class will continue to grow.

If you have any questions please send them to info@thornhillcapital.net

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