China’s middle class worries about the future under Xi Jinping’s ‘common prosperity’ initiative
- President Xi Jinping’s strategy to reduce wealth inequality is now the main objective in China’s next stage of development
- But heavy-handed regulation coupled with a slowing economy has some middle-class citizens worried about their livelihoods
Six months after losing his job at an online education firm amid an industry-wide crackdown, Michael Zhao now makes a living linking mainland students with foreign English tutors – albeit on the sly.
China banned classes with overseas tutors last summer and ordered private education companies to switch to non-profit status, part of an overhaul in the sector aimed at reining in runaway investment, easing students’ workloads and reducing financial pressure on families.
“Now I’m self-employed,” said Zhao, who is using his English first name to protect his identity.
I understand at its core it is about fostering a bigger middle class. But ironically, I’m afraid I’ll fall out of the ranks before long
“So far the business is not bad. But I’m not sure if I’ll be able to sustain it because it is illegal.”
While working at his previous job as an assistant tutor, the 31 year old said he would spend his pay cheque each month with little thought, just like many of his middle-class friends. Now, he does not feel so confident.
“I’m considering leaving Beijing and selling my flat at loss,” said Zhao, a native of the eastern province of Shandong who studied sociology in Britain.
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The strategy is expected to feature prominently at the annual gathering of the nation’s top legislative and political consultative bodies in Beijing next month.
About 400 million Chinese, or roughly 30 per cent of the population, are regarded as middle class – with an annual household income of between 100,000 yuan (US$15,800) and 500,000 yuan, according to the National Bureau of Statistics (NBS).
Beijing has vowed to enlarge the group, improve essential public services and narrow the nation’s income gap to a “reasonable range” by 2050.
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“China’s main approach has been limiting high incomes and raising low incomes. It’ll remain so amid the economic slowdown,” said Chen Daoyin, an independent political analyst and former professor at the Shanghai University of Political Science and Law.
As the economy slows, the middle class will be lucky to maintain a stable income because “common prosperity” mainly supports the poor, Chen said.
A survey by the People’s Bank of China at the end of last year showed that 37 per cent of respondents were finding it difficult to find employment, while only 13 per cent said job-seeking was easy. The other half said employment prospects were so-so.
Both the employment expectation index and income confidence index were at low levels, according to the survey of 20,000 saving account owners in 50 cities across the nation.
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Lisa Zhou, who works for a leading telecommunications company in Shenzhen, said her employer was not affected by government action, but fell victim to a bearish sentiment in China’s stock market last year. Chinese stocks were among the world’s worst performers in 2021.
As a result, Zhou did not get a pay rise this year and the stock price of her company has fallen sharply, which might make her stock options valueless.
“My colleagues and I are all frustrated,” said Zhou. “Looking forward, while Shenzhen has a tax rebate policy for executives of technology companies, ordinary employees are not included. We’re very worried that the personal income tax burden will continue to grow soon with the expiration of some preferential policies.”
In January, China announced it would extend some personal income tax cuts until 2023 to help counter economic headwinds, including preferential tax policies on end-of-year bonuses and equity incentives at listed companies. These measures are expected to reduce taxes by 110 billion yuan a year, according to the State Council, China’s cabinet.
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Although China’s high tax rates have been criticised by some economists for discouraging productivity, there is no sign they will be lowered soon.
George Magnus, a research associate at Oxford University’s China Centre, said: “I think there could certainly be some proposals to ease the tax burden on the middle class, and tighten it on ‘unreasonable’ incomes, but I doubt we are going to see a significant reform of the tax system.
The overriding goal this year is stability, and so I don’t expect any radical policy initiatives
“The overriding goal this year is stability, and so I don’t expect any radical policy initiatives.”
At the central economic work conference in December, China’s 25-member Politburo said that stability was key to economic decision-making in 2022.
Policymakers pledged to “front-load” policies to shore up the economy, which is facing threefold pressure, including contraction of demand, supply shocks and weaker expectations.
Zhou said many middle-class people in Shenzhen had heavy mortgages to pay and, with house prices falling, it puts a lot of “psychological pressure on people to cut daily spending”.
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The property sector, a key driver of economic growth, was hit by a slew of government curbs last year. The value of property sales grew by just 4.8 per cent to 18.2 trillion yuan (US$2.9 trillion) compared to 8.7 per cent growth in 2020.
The amount of floor space sold also grew by just 1.9 per cent last year, according to data from the NBS, with real estate investment growth falling to a 22-year low of 4.4 per cent last year.
As property prices tumble, some homeowners are choosing to suspend loan repayments.
A court in the city of Sanhe, fewer than two hours’ drive from downtown Beijing, has listed around 1,000 flats on e-commerce platform JD for auction since May 2020 after owners forfeited on repayments.
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Eli Ma, a 37-year-old marketing director at a Hong Kong-funded company in Guangzhou, worried the joint income he and his wife earned would not be enough to provide a so-called middle-class life for their 9-year-old son and their second child to be born in June.
“Both of our incomes are practically the same as in 2017 and 2018 as our business was impacted by the coronavirus pandemic,” he said.
“Home prices have soared and dropped like a roller coaster and now the property market is frozen and it is harder to sell than before.”
According to a central bank survey of more than 30,000 households in 2019, 70 per cent of the assets held by urban households, which make up most of China’s middle class, were in property.
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“I feel quite upset that I’ve been working hard to get into the upper class, but now I feel like actually, I’m falling out of the middle class,” Ma said.
“With a monthly income of 30,000 yuan, most of it goes to pay the mortgages and the rest needs to support the daily expenses of four people.
“We’ve not been travelling for a long time, and we even have to stop paying the insurance we bought in Hong Kong a few years ago.
“I hope there’ll be policies to address my woes.”
