A woman poses for photographs with the Bund Bull in Shanghai on February 19. China’s 400 million-strong middle class is central to its future economic prosperity, creating an urgent need for reform to reverse trends of stagnant wages and rising fear of falling out of the middle class. Photo: Bloomberg
Opinion
The View
by Winston Mok
The View
by Winston Mok
China’s middle class crying out for reform to restore confidence
The middle class has long been seen as the core of China’s future prosperity, but a depressed stock market and home values are sapping their confidence
The nation is at a critical juncture when effective reforms are needed to channel the energy of the middle class into driving economic recovery
In the narrative of China’s rise, the middle class stands at the core of national rejuvenation – a crucible where aspirations, hard work and consumerism meld to forge progress. Yet, in the shadow of a once-burgeoning economy, this foundational group is dealing with the harsh realities of a depressed property market and wild stock fluctuations.
This economic turbulence has stripped wealth from those previously deemed pillars of China’s rapid ascent. Among polled middle-class families, about 40 per cent suffered a wealth reduction of at least 10 per cent in 2023. Eroding consumer confidence and shrinking net worth mark a stark departure from the prior engines of growth and threaten to derail the nation’s march towards prosperity.
Nowhere is this shift more visible than in the collapsing piano market, a symbol of cultural ambition now discarded as middle-class families recalibrate their finances. The trend extends to international schools, where once-abundant applications from an aspirational middle class are replaced with dwindling enrolments. Costly education and enrichment programmes, once seen as smart investments or status symbols, are now closing amid the throes of financial uncertainties.
Owning a home has long stood as a bastion of middle-class identity in China and an emblem of financial security. Yet as property values fall in an unprecedented market downturn, the once-coveted dream of owning a home has paradoxically drifted within reach, only to be met with ambivalence and economic apprehensions.
Luxury vehicles have lost their allure to electric vehicles’ fuel savings. Discount marketplaces are outpacing luxury item sales. These developments point to a distressed middle class grappling with diminished economic prospects. Their deep-seated economic anxiety is precipitating a downward spiral where diminished spending could further stifle growth.
The nation is at a critical juncture when effective reforms are needed to channel the energy of the middle class into driving economic recovery. Without such changes, China’s middle-class population – estimated to number more than 400 million people – could begin to dwindle.
15:52
Middle class in China and US fear losing status
Middle class in China and US fear losing status
Given that about two-thirds of China’s middle class falls into the lower-middle income category, a significant portion remains precariously close to the threshold defining middle-class status. In a cautionary commentary last December, the Economic Daily highlighted the looming threat of individuals slipping out of the middle class.
While China’s official unemployment rate remained low at 5.1 per cent in December, underemployment is a widespread problem. In 2021, more than 200 million people – nearly a third of China’s work force – were in flexible employment.
Some white-collar workers lost their professional jobs or accepted steep pay cuts. In the last quarter of 2023, compared to a year ago, average salaries fell by 1.3 per cent in major cities.
This calls for a strategic recalibration of government policies aimed at reviving the economic fortunes of this crucial demographic. As Beijing contemplates policy shifts to alleviate these pressures, it must balance immediate relief with long-term reforms to fortify the middle class.
To ease the struggles of the middle class, the government could implement a mortgage moratorium on halted or deserted construction projects. Prioritising citizens’ welfare over the profitability of state-owned banks is imperative. Furthermore, public housing – a foundation for Singapore’s middle class – can be significantly expanded.
The shared financial strains among public- and private-sector employees, marked by reduced wages and deferred salaries, fail to support consumer spending. To counteract this, the central government must allocate funds to local governments and ensure timely payrolls for civil servants to reinvigorate consumption.
Enhancing social welfare for rural communities is crucial during these challenging times. Providing assistance to underemployed migrant workers would also ease the financial pressures faced by the urban middle class, who often bear the responsibility of supporting parents who live in rural areas.
Amid the financial setbacks experienced by affluent Chinese investors because of underperforming domestic wealth management products, it is essential to expand their investment horizons through financial liberalisation. People are flocking to the safety of gold. Access to a diversified array of international investment opportunities could enhance the performance and resilience of their portfolios.
01:31
Chinese consumers sell off old jewellery amid record high gold prices
Chinese consumers sell off old jewellery amid record high gold prices
A comprehensive retraining programme is needed to equip the workforce to meet evolving market demands. This programme should cater not only to new graduates, who may find their qualifications mismatched with industry requirements, but also to older workers who need to update their skills.
Ultimately, fortifying China’s middle class depends on restoring economic dynamism with market reforms that spur innovation and entrepreneurship. Job creation remains the top priority. Reducing regulatory uncertainty is a critical first step in restoring business confidence.
The hit film Johnny Keep Walking! goes beyond being a blockbuster and distils the middle class’s collective angst, trapped in the throes of an evolving economy and aching for true equality. The protagonists’ struggles with stunted career growth and precarious job security resonate deeply with viewers. As the echoes of laughter in cinemas fade, the audience is left with a yearning for the equitable opportunities and upward social mobility celebrated in the film.
The twin objectives of China’s resurgence – national rejuvenation and the pursuit of common prosperity – hinge on a growing middle class. The trajectory of an expanding middle class can only be supported by a meritocratic system without unfair glass ceilings.
China’s future is inextricably linked to a rule-based institutional framework that can position its citizens at the heart of its success. It is time for the “Johnny” spirit to be embodied in the nation’s ethos – unwaveringly walking forward towards a horizon of hope, achievement and common prosperity.
Winston Mok, a private investor, was previously a private equity investor
.jpg?itok=EbVWo-Ha)
