Is China’s Economic Rise Coming to an End?
Holding her newborn daughter, Lynne, 33, feels apprehensive about the future.
Her elder son, though adorable, is already draining the family coffers and he hasn’t even started school yet. His private kindergarten in Beijing costs 80,000 yuan (US$11,ooo) a year. Extracurricular classes, including 10 hours a week of English, sports, painting and online tutorials, cost another 60,000 yuan (US$8,300). She already knows that his five-month-old sister won’t get the same resources.
“I don’t have the energy to jiwa again,” she says, using a Mandarin term for helicopter parenting. She longs for her home town of Xingtai, a small city in Hebei province, where school fees are a fraction of what they are in Beijing, and where life is “peaceful and relaxed and happy”.“It’s really hard in Beijing,” she says.
China’s Economic Boom
Like tens of millions of other wealthy urbanites in China, Lynne has ridden the wave of an economic boom that has transformed China from a poor, largely rural country into the world’s second-largest economy.
When Lynne was born in 1990, nearly 70% of China’s population lived in extreme poverty, according to the World Bank. Now that share is virtually zero (although many people are still very poor).
When China joined the World Trade Organization in 2001, western pundits predicted that greater economic engagement with the west would lead to political liberalisation, while in China, leaders promised the opposite: as long as ordinary Chinese stayed out of politics, the state would deliver riches.
Both of those predictions have failed to materialise.
The Central Bargain
Since Xi Jinping came to power in 2012, Beijing has clamped down on dissent at home and taken a bullish stance on the world stage. Now the central bargain between the state and middle class has shifted to an offer based on security rather than prosperity.
However, that’s not necessarily what China’s middle class – which has ballooned in the 21st century – signed up for.
The Middle Class in China
Definitions of what constitutes the middle class vary, but according to the Pew Research Centre, the share of China’s population in the middle income group grew from 3.1% in 2000 to just over 50% in 2018. By the end of this decade, another 80 million people will join their ranks, predicts Boston Consulting Group.
But although living standards are improving for many people, social mobility is stalling. Children born in the bottom 20% of society in the 1980s are less likely than those born in the 1970s to move into the top 20% income group, according to a 2019 study. Amid growing inequality, climbing the social ladder is competitive and increasingly only an option for families that are already wealthy.
A study, published in 2020, found that while sons of peasants had increased their access to higher education by 11 percentage points between 1945 and 1980 onwards, for sons of professionals the increase was 34 percentage points.
Xi’s Common Prosperity Drive
Xi is alert to these frustrations. In 2021, he started talking about the need for “common prosperity”, reviving a Mao-era phrase that was also invoked by Deng Xiaoping, the leader who oversaw China’s reform and opening up, who said that by letting “some people get rich first”, common prosperity would follow.
Xi’s common prosperity drive prompted major crackdowns on business and the ultra-rich. It also included measures to cool the competition among jiwa parents such as Lynne, by banning for-profit tutoring and setting limits on homework.
State media said that the policies would reduce the burden on students, but parents complain that they just shifted responsibility from schools to families. Exams remain ruthlessly competitive and the tutoring industry has merely been pushed underground. Last year, the government ministry of education closed down more than 450 tutoring firms that were continuing to offer lessons despite the ban. “I don’t think it’s good,” says Lynne, of the homework bans. “It’s more complicated now.”
Challenges Facing China’s Economy
The sudden end of a tutoring industry, worth an estimated $120bn, at the expense of millions of jobs for young graduates, is a microcosm of the challenges facing China’s leaders.
The middle class boom promised with it an urban lifestyle closer to that of young graduates in the metropolises of western Europe and the US. China’s educated younger generations are overqualified for factory jobs, once the bedrock of China’s economy, but have struggled to find meaningful work to take its place. In 2021 more than 70% of unemployed Chinese city-dwellers aged 16 to 24 had a degree.
Many educated elites are no longer confident that they or their children will be able to improve their lives in the way that their parents did. Instead, the government is offering a nationalist, security-based vision of stability, with the economy paying the price if necessary.
Goldman Sachs still predicts that China will overtake the US to become the world’s largest economy by 2035. But other economists think that China will never become number one, and that its economy will soon peak.
This is the first in a series of articles that will examine the challenges facing China’s government and its population – at a time of upheaval for the country’s economy.