China’s Disappearing Middle Class

China’s economic challenges are shrinking its once-burgeoning middle class, while its demographic issues will create more such problems in the future.

A tech worker poses for a portrait in Beijing's middle-class neighborhood of Shangdi, China, on June 29, 2022. Noel Celis/AFP via Getty Images

Commentary

China’s middle class has enjoyed a remarkably rapid pace of growth for decades. From the late 1970s to the 2010s, expanding work opportunities allowed peasants to rise out of abject poverty and other workers to begin accumulating a measure of wealth.

Such striking improvements have now begun to falter under the impact of the property crisis and the loss of export markets in the United States and Europe. And there are other challenges. Extending beyond the legacy of these difficult times is the effect of a shrinking population, especially the relative shortage of workers it will bring. Because Beijing has set out to cope with this situation by relying increasingly on robotics and artificial intelligence (AI), it is setting the stage for the kind of wage gap that already troubles developed economies in North America and Europe.

For the middle class, the immediate problem is the economy’s pronounced slowdown. Exports have remained more or less stagnant for the last five years due to tariffs on Chinese goods and other forms of trade resistance from governments in North America and Europe. China’s exports have further suffered from efforts by Western and Japanese companies to diversify their sourcing away from China.

Of late, Chinese exports to the United States have picked up, but that is less a sign of fundamental strength than of a purely temporary surge by American buyers to build inventory ahead of U.S. President Donald Trump’s latest round of tariffs.

Most significant in this deteriorating economic situation is the property crisis that began in 2021. The failures of major property developers have depressed home buying and construction in China’s important construction sector. Adding a still more significant impediment to Chinese economic development is the degree to which these setbacks have reduced real estate values.

Because Chinese households have so much of their wealth tied up in their homes, these value declines have had a powerful negative impact on households’ net worth. To rebuild that wealth, people have turned from spending to saving, taking major support away from China’s economy. Combined, these effects make it doubtful that China can even realize Beijing’s already downsized 5 percent real growth target for 2025.

China’s middle class has borne the brunt of this economic shortfall. Annual wages, which expanded at a 9 percent annual rate as recently as 2018, have increased by only 4 percent to 5 percent in recent years. Bonuses last year trailed 2023 levels by nearly 18 percent. Beijing’s Statistics Bureau reports that income tax receipts for 2024 fell by 16 percent from the prior year. European luxury brands report Chinese sales declines of 18 percent to 20 percent.

Because Beijing has yet to bring out a program to remedy these problems, the adverse pressures on China’s middle class seem set to continue. Trump’s tariffs and Beijing’s retaliations will further depress levels of U.S.–China trade and will surely compound the general economic problems. Even if Beijing can find a remedy for China’s immediate difficulties, other, more fundamental problems also threaten the middle class.

China’s population is shrinking. The so-called one-child policy, in place from 1979 to 2015, cut birth rates below replacement. As a result, the country now lacks a youthful workforce to replace the larger group retiring, who were born before the policy took effect. At present, there are fewer than four people of working age for every retiree. By 2030, that figure will fall to well below three.

With minimal immigration, China faces a severe shortage of workers. If nothing else were changing, this fact would tend to raise wages and salaries and enrich, if not enlarge, China’s middle class. But much else is changing.

Beijing, for a number of reasons—one of which is the impending worker shortage—has taken a number of steps that alter the picture. It has rescinded the one-child policy, but the change in the law seems to have had little effect on fertility rates. Even if the birth rate were to rise, it would be 15 to 20 years before it could have any effect on China’s workforce.

Meanwhile, Beijing has placed a great emphasis on robotics and AI, among other things, as a substitute for workers that the economy would otherwise need. Although this technical solution may sustain Chinese production levels despite the labor shortage, it will radically change the character of China’s workforce, reducing the need for line workers and increasing demands for managers and technicians.

This is what is happening in the West and Japan. Like these other places, China’s emphasis on technology will, as it has in the West, lead to an expanding wage gap and a more bifurcated income distribution. The managerial and technical sides of the workforce will see increased employment opportunities and, accordingly, gain income and wealth, while others—such as line workers and the country’s large population of gig workers—will lose out and fall below any definition of the middle class, and indeed face poverty.

This wage bifurcation has already caused considerable political turmoil in the United States and Europe. In China, such matters have the potential to become even more extreme than in the West, as China’s demographic situation is more severe, and the country has no hope of an influx of immigrant workers to supplement its reduced native-born workforce.

What is more, China has a limited social safety net to sustain those left out of this high-tech solution. Beijing can, of course, relieve some of this strain, and it is considering measures to beef up its social safety net, such as pensions for gig workers. But given Beijing’s failures so far to deal with the nation’s immediate economic problems, it remains an open question whether Chinese officials can step up to the needs of the longer-term situation.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.