Overestimating the Chinese middle class

By Ye Tan
0 CommentsPrint E-mail China.org.cn, September 3, 2010
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A questionable report by the Asian Development Bank (ADB) released this August defined most Chinese citizens as middle class.

The Asian Development Bank report Key Indicators for Asia and the Pacific 2010 published August 26 defines the Asian middle class as those consuming between $2 and $20 per day. Using these figures, it estimates Asia's middle class was 1.9 billion strong in 2008, accounting for 56 percent of the population, up from 21 percent in 1990. Astonishingly, according to the report, the Chinese middle class numbered 800 million, and accounted for 60 percent of the country's population.

But $2 is barely enough to buy a chicken burger in China, not to mention basic services like water and electricity. Admittedly, Key Indicators 2010 defines sub-categories of lower-middle class ($2–$4), "middle-middle" class ($4–$10) and the upper-middle class ($10–$20). But it is nonetheless absurd to define the 300 million Chinese with consumption levels of $2 - $4 a day as middle class.

The report is just another example of overseas observers consistently over-estimating China's purchasing power. As far back as 1993, the IMF ranked China as the world's third largest economy after the United States and Japan, using Purchasing Power Parity (PPP) estimates that put its per capita GNP at $1,300 and its GDP at $1.47 trillion. Ever since then, the world has believed China is better off than it really is.

But is it true? Yao Jian, spokesperson of China's Ministry of Commerce, said this August that more than 150 million people in China are still under the international poverty line of $1 per day. Surely a consumption level of $2 per day puts people much closer to this impoverished group than the middle class?

China has its own revenue standard for defining its middle income group. According to Cheng Xuebin of the State Statistics Bureau, in 2005 the middle class revenue standard was defined as an annual income of 60,000 to 500,000 yuan. Based on this, just over 20 percent of households were in the middle class group.

Given the huge gap between rich and poor in China, bald statistics on income per capita and daily consumption don't mean very much. Wang Xiaolu of the National Economic Research Institute of the China Reform Foundation recently claimed that China's richest citizens are even wealthier than statistics suggest, and may hold as much as 9.5 trillion yuan in hidden assets. Wang's data show the wealth gap is even wider than we thought.

And Lu Dale of the Chinese University of Hong Kong says income is not the most important criterion of class status. Hong Kong people who earn between HK$20,000 and 50, 000 (US$ 2,600- $6,430) monthly are by definition part of the middle income group. But "that doesn't make them middle class," Lu says. It depends on other factors such as "whether you own property, your consumption patterns and whether you have regular holidays." According to this standard, Lu estimates only about 20 to 25 percent of Hong Kong people can be counted as middle class. And with the economic crisis, many of them risk losing their status due to unemployment or bankruptcy.

A proper definition of the middle class should include criteria such as type of career, consumption patterns and living standards, and having a voice and standing in society. According to such a definition, the Chinese middle class would be much smaller than the ADB estimate.

China has made great achievements in the battle against poverty, but it hasn't made equivalent progress in constructing a middle class. To establish a genuine middle class we need to complete the urbanization process and build a civil society.

Li Zhonghe (Jong-Wha Lee), ADB's Chief Economist, says "Even though the Asian middle class has significantly lower income and spending relative to the Western middle class, its growth in expenditures has been remarkable and its absolute levels are commanding." Indeed, China's consumption of luxury goods is growing rapidly, and because of this some people mistakenly believe that most Chinese are middle class. But this is something we should be worried about rather than being happy for.

(This post was first published in Chinese and translated by Zhang Fang)

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