Starting points [By Jiao Haiyang/China.org.cn]

A recent report from a US research group predicts a steady and substantial improvement in the disposable incomes for many of China's citizens.

That's good news, but only for some people and only if it really happens.

The Boston Consulting Group, a management think tank, says in a recent report that based on current data, approximately 20 percent of Chinese citizens will have enough money to be considered affluent by 2020. According to the report, "affluent" means having an annual household income between US$20,000 and US$1 million (about 124,000 to 6.24 million yuan at current exchange rates). In eight years, roughly 280 million Chinese will have a purchasing power equal to about 5 percent of total global consumption. To put that into perspective, that is almost the same level as Japan's current total consumption for the year and about three times that of South Korea.

All of this sounds, and is, good for China. For this lucky 20 percent, their increased earnings will give them a median purchasing power roughly equal to that of people in most developed countries. Affluent people, who have more money than those in the middle class although not as much as those considered to be super rich, generally pour their money back into the economy as they indulge their penchant for "keeping up with the Joneses" — buying new things, traveling and enjoying the other trappings of the moneyed class. This in turn means jobs for those who produce and service the things the affluent want. Thus, the ripple effect benefits far more than simply the 20 percent we're talking about.

Unfortunately, this increase in the prosperity for some does not mean everyone is better off. The percentage of people in China who are considered poor is approximately 16 percent, roughly the same proportion of those living in poverty in the US. But China's massive population means that well over 200 million people fall into this category — a huge number that continues to be an anchor dragging China's economy.

There are also some indications that the disparity between the well-to-do and those who are only just scratching out a living is growing. This has contributed to such things as population shifts, as young people from the countryside try to go to the cities in search for higher wages. This will generate a slew of challenges for the new Chinese government.

It's interesting to note, however, that the Boston report comes at a time when there is increasing talk in Washington about an impending fiscal cliff. One of the first steps taken by President Barack Obama since his re-election was to call business leaders together to discuss this problem, as the economies of various countries, notably in Europe, continue to teeter on the brink of collapse. The Boston report's predictions are based, as they must be, on past performance and current trends but if there is a significant economic crash and if China is drawn into it, all bets are off. At one time, China was considered an economic heartland, a country that could exist comfortably on its own internal resources. In today's world I have to wonder if there are any true heartlands left.

What is happening in China and what may keep the movement toward increased affluence going is a shift in the way the Chinese economy functions. Yu Miaojie, an associate professor at the China Center for Economic Research at Peking University, notes that for the first time this year, the country's GDP was driven more by domestic consumption of goods and services than by investments in fixed assets such as real estate. He says this trend must continue in order for China to have sustainable economic growth (The Boston report appears to show the country is on track to have this happen over the coming decade at least). Professor Yu calls on the government to reduce taxes and improve the social safety net in order to keep moving forward. If that argument sounds familiar, it was also prominent in the recent US presidential election campaign.

On the surface, bringing in less tax money and also trying to do more with it seems contradictory, but this is where those who run the country earn their keep. Managing the economy of a country in order to preserve and encourage growth and prosperity for the people, as well as the safety and well-being of the poorest, is a delicate balancing act. So far the trend is very positive and hopefully it can continue, fiscal cliffs notwithstanding.

Brad Franklin is a former political reporter, newscaster and federal government employee in Canada. He is a regular columnist for China's English Salon magazine and lives on Vancouver Island.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn

Related

• Zong Qinghou tops China Rich List 2012
• How China's rich spend their money
• Increase in China's rich seeking US residency
• Half of China's rich want to emigrate

Go to Forum >>0 Comment(s)