China Business

China’s Middle Class: Listen Up And Listen Good.

China's middle class

Professor Wayne Moyer, from whom I took many an international politics class, was one of the best teachers I have ever had. He taught that revolutions typically come from the middle class, not from the poor, who are usually too busy worrying about putting food on the table to revolt. I thought of Professor Moyer today when I read Andrew Hupert’s post on DiligenceChina, entitled, China’s Fastest Growing Economic Component: The Expectations of the Chinese People. [link no longer exists]

Hupert starts by noting how China’s “economy has surpassed every rational hope and padded, overly exuberant estimate,” and then states “that’s how the trouble started:”

Because now China has a middle class – and two things are true about middle classes everywhere and every time.

1) The Middle Class wants more.

2) You screw with the Middle Class at your own peril.

Hupert believes China’s middle class wants “parity with Middle Classes all over the world:”

For centuries rank and file Chinese have been told that they are culturally, intellectually and spiritually superior to anyone else on the planet, and that the moment their day in the sun arrived they would take their proper place in the world. Well, their day is here. And they don’t want everything their international colleagues have – they expect it.

Though I agree with Hupert on this, we diverge on where the fault lines will be. Hupert sees the middle class creating two “sticky issues” for Beijing: education and media access. I agree these are two of Beijing’s most important issues for dealing with China’s middle class, but I do not see them as being among the most difficult.

Hupert rightly stresses that the Chinese “mania for educating their kids” is very real and he also rightly describes education as the “cornerstone” of the CCP’s plans to stay in power. Hupert sees the Party having the following three “pretty stark choices” for education:

1) Reform China’s entire educational system from the ground up – starting with kindergarten – to reflect the needs of an urban intellectual elite that the CCP doesn’t really trust in the first place.

2) Maintain a dual system – free public schooling for the masses and a free-wheeling system of elite private schools for the Princelings – often run by foreigners.

3) Ban or sharply curtail private schools and maintain the “level playing field” and control over education of the middle class.

Hupert sees the Party continuing to deal with education by using “some hodgepodge, slapped-together hybrid of conflicting rules and unenforced edicts.” I agree on this, but disagree it will brew up a middle class crisis. Indeed, this hodgepodge hybrid may actually be the best way to improve education for both wealthy urbanites and the rural poor, without explicitly moving from an education system nominally based on equality.

Access to media is Hupert’s other big middle class issue and he considers this a business issue:

When China was the Poor Man of Asia the government could justify a Stalinist information policy. But as Shanghai sharpies and the rest of China’s middle class get set to muscle their way in to foreign markets, lack of basic data is going to put them at a severe disadvantage. Chinese businessmen who have never seen a viral video on YouTube or read an editorial about western attitudes towards Tibet can still buy western brands and equipment – but they will have a considerably harder time selling their products or services overseas.

Again, I agree with Hupert that this is an important issue for Beijing, but again, I do not see this as creating major middle class problems, at least not for some time. Chinese business will increasingly need access to information, but my impression is that it is getting nearly all of the important stuff (for business) already.

What do you think?

20 responses to “China’s Middle Class: Listen Up And Listen Good.”

  1. Just a quick reflection. I think he has a good point. So far, China has been very good at improving hardware, building and manufacturing stuff. But if China wants to move up the ladder and create products that are not derivative of foreign products, they will need to understand how non-Chinese consumers think; they will need software. And if you want that, you will have to trust people to find the information they want and the education they need. That is how Japan has maintained its competitive edge and why that country keep churning out products that sell world wide. China is not there yet.

  2. China has a very well developed education system for the elite since 1949, from Kindergarten to University, all run by the government and the party. These are schools that the middle class children wants to get into, but not always succeed. This system of schools produce very devoted followers, if not members, of the ruling party and are very reliable. Chinese government can easily adapt this system of schools for the middle class and elites, and don’t have to use foreign run schools at all.

  3. Interesting piece and argument.
    I have often wondered whether the risk of uprising in China comes most from the urban poor, rather than the middle class or rural poor.
    Time will tell ….

  4. BBC Radio 4’s Shanghai correspondent did an interesting story on increasing middle-class political activism on “From Our Own Correspondent” a couple of weeks ago. He reported on increasing ‘not in my back yard’-style protests amongst the urban elite, with people complaining of devolpments effecting the values of their homes. It seems that this, the emergence of protests by people who are unlikely to be party members, is the start of what the party should fear most – centres of political power developing outside the communist party.
    @Bill – I really hope you are joking, today I went to a job interview in Oxford, every fifth face I saw appeared mainland Chinese, the vast majority of them attending English (ESL) schools or Oxford Brookes university. Chinese parents are very willing to spend the money to send their children to a school which has ‘Oxford’ in its name.

  5. Andrew’s blog site is still blocked here in China, so I’ll have to respond to what Dan has written without the benefit of reading Andrew’s post directly: I agree with Dan that the points Andrew brings to light about Chinese middle-class entitlement are important, but I do not believe they will bring about true revolution or downfall of the Powers That Be in China. Tiananmen Square in 1989 and the student protests of May 1919 showed that the relatively well-educated and urbane have big mouths that – because of their concentration in places like Shanghai and Beijing and isolation relative to the rest of the country – are relatively easy to shut up with little direct affect on the country-side.
    Chinese history also shows – with all due respect to Professor Moyer – that Chinese revolutions every three-hundred years (give or take a hundred years) happen because the center has come undone, usually as a result of imperial corruption and complacency. Then, hordes swoop in from the North, as with the Mongols and Manchus; or from the sea, as with the Westerners and Japanese. Point is, China’s never had a middle class to revolt; instead, it’s had a merchant class that took advantage of the intervening chaos to become wealthier, riding out the waves of political foment.
    The Communist Party is most afraid of the peasants and the proletariat, those whom members of the merchant class like Mao Zedong and Zhou Enlai were able to organize against others of the merchant class that had the power at the time, represented by the Kuo Ming Tang. Today’s middle class can be bought off through political largess or simply threatened with loss of the sort of niceties that the middle class round the world has become addicted to: relatively cheap energy, cheap food, cheap healthcare, cheap shelter and, yes, access to cheap, quality education (access to all of which in the States is becoming increasingly restricted as we speak).
    What will really rile today’s growing Chinese middle class, though, is a lack of jobs or upward mobility, which every middle class believes it’s entitled to. However, as is the case now, there are more university graduates in China than ever before in its history, relative to its population. There are also more un- and under-employed university graduates than ever before, too.
    China’s peasants and low-paid factory workers and migrant population of 150 million have nothing to lose, though; they only have jobs in the New Economy to gain — and there’s A LOT more of the “unwashed masses” than there are of the middle class. And if the Government is unable to continue producing jobs and opportunities for them to enter the middle class, then the Party Leadership will be in trouble on a revolutionary scale.
    It’s those with nothing to lose you have to be careful about. They will do nearly anything to get what you’ve got. And then they’re really dangerous.
    Bill

  6. Just what is it the Middle Class wants? To be free to read James Joyce and do body-piercing, while break-dancing down the boulevards? Maybe a few do, but most just want to fit in, to get good jobs, to live well and take annual trips abroad to snap photos and buy souveniers. There won’t be any extensive overhauls of the educational systems soon, and I agree with Hubert on that. Concerning business, it’s not the lack of data which hurts most Chinse businesses. It’s their Chineseness which hobbles them. Whereas the Japanese and Koreans gave in to American marketing gurus and Madison Avenue, thereby shedding their insularity else perishing in our markets, the Chinese just can’t seem to make the hurdle yet. Years ago, Tatung of Taiwan, a really excellent brand and set of products there, failed awfully here. Those of my successful Chinese clients who have prospered in the US have opened their minds to the “other worldliness” of America, mix comfortably with Americans, and dare to take the leap. They can be Chinese and American at the same time, and have the self-confidence to move in and out of each world. But too many Chinese don’t even know where to start, not because of data-starvation, but because their own self-images hold them back.
    The Chinese Middle Class, in their many millions, will have to dare to be different from each other if they are going to move ahead and outward. Being Chinese is not an end in itself, but it is the end if all by itself.

  7. This is China,
    I was waiting for someone to point this out and I almost put some of this in the post myself, but I am just not sure. Someone with a better grasp on Chinese history will have to answer this for me, but beyond the peasants getting angry, have they ever LED a revolution? Was Mao really a peasant? Zhou Enlai certainly was not.

  8. Todd Platek,
    Good points. Do they merely want anything more than Ted Kennedy and his friends who are appalled by windmills messing up their tranquility? Check out comments above for more on this.

  9. Well, if we take the American middle class as any indication, we’ll be waiting for a long time for a revolution. As long as they have their creature comforts and not too many of their kids are going off to die in wars, they are very happy to support the status quo and allow those skimming off the top to continue skimming.
    So I agree with the others here who stress the importance to the CCP of keeping the economy growing. Ending corruption, cleaning up the environment, and opening up politically will all take a back seat to keeping the cash flowing.

  10. Dan,
    Though Mao was sortof a peasant- he grew up as one, anyway- by the time he started leading the rebellion in Hunan he hadn’t actually lived as a peasant for about a decade. I’d say this is reflected in the CCP’s assertion that though peasants are the bulwark of the revolution, they must follow the party’s lead.
    However, in Chinese history, there have been many other peasant-led rebellions, successful ones including the rebellion led by Zhu Yuanzhang, who founded the Ming; and Liu Bang, who founded the Han. Almost successful ones include the Taiping rebellion led by Hong Xiuquan in the mid-19th century, and the rebellion led by Li Zicheng which overthrew the Ming (and was itself quickly defeated by the Manchus).
    So, yes, there is a precedent of peasant-led rebellions, and from what I know they usually happen when the peasants are so desperately poor that they have no other choice but to rebel. Corruption and draconian governments often contribute as well.
    My question would be whether the Chinese are less tolerant of poverty and oppression than before and therefore more willing to rebel. I’d keep in mind that even with thousands of “public disturbances” a year China is very stable right now, by Chinese standards- even during its height the Qing dynasty constantly faced peasant rebellions.
    As for the middle class, I’d say that for now, they are unwilling to lose what they’ve gained through a revolution. I think they’ll only rebel if they think it’s necessary to not lose what they now have.
    Another possibility is a military coup. The Song and Tang dynasties were both founded by generals who overthrew weak, corrupt and harsh rulers.

  11. FOARP: Yes, the middle class may prefer to educate their children in real foreign schools. But as a policy alternative, that may not be suitable for the government. I am just pointing out that may not be what the Beijing government chooses to solve a problem when a threat is detected.
    If the government always goes along with popular choice, it won’t be an authoritarian government.

  12. @CLB – Yes, expect Zhongnanhai to be stormed by SUV-driving soccer-moms waving placards emblazoned with the slogan “Give us lattes or give us death!” any minute!
    On a more serious note, suppose every town and village in the three-gorges flood zone had had a modern style gated community (you know the type, they’re usually called ‘可爱镇’ or something equally lame), each with its own population of aspiring professionals. I have to think that the project would have been met with fiercer – and much more public and difficult to silence – opposition than it was.
    For the record, environmental and pacifist groups did play a part in the end of communism in eastern europe. Given the brainwashed state of the students, and the government’s intolerance of any kind of independent trade-union movement, environmentalist, pacifist and local action groups are about the only real centres of political activity outside of the CCP at the moment. The question is to what degree they can be co-opted by the government.
    There are, of course, many demonstrations everyday across China against land seisures, pay cuts etc., I myself have stumbled across several without even looking for them. These demonstrations, though, are ad hoc affairs with little organisation and little impact.
    As for a peasant revolt, there have been plenty of examples (the classic English example being the one led by Wat Tyler), but none of them that I can think of have been successful. About the only thing which might spark one in China at the moment is land reform, something which is long overdue given the essentially medieval state (serfs tilling strips of land which they rent from their overlords) of Chinese agriculture.
    @Todd L. Platek – Foxconn – the ‘Chinese’ company with which I am most familiar – is an example of a company which has been very successful whilst still remaining very Chinese. It has done this by following the same doctrine to which the Chinese government itself is (for the moment) commited – that of ‘not claiming leadership in the outer world’.
    I personally think that the failure of Chinese brands in the west so far is pretty much down to branding. There is a total amateurishness to the way in which Chinese companies market their products – the name ‘Tatung’ for example, is neither pleasing to the ear, nor meaningful, nor attractive in any possible way. Truthfully ‘Foxconn’ is also a pretty awful example of an attempt to rebrand (seriously, why didn’t they stick with Hon Hai?).
    However, Chinese companies are increasing their prescence in many other parts of the world where I think they will have much more success. The attraction of western brands is far less important to the people of Sao Paolo or Gaza than how cheap and easy to repair/replace a product is, hopefully this will form a base which Chinese corporations may build on.

  13. @JB – I would dispute that Mao was a ‘peasant’, his family were of that class that communists used to call ‘Kulaks’, i.e. well-off farmers.
    @Bill – Send children overseas for their education is not a viable government policy, but it is a viable family choice, and more and more people will exercise it. Likewise the power to decide how children are educated within China is also slipping away from the government as it is no longer the main source of funding in the cities. Mao was not entirely correct when he said that power grows from the barrel of a gun (a quote I had always felt to characteristic of Mao to be a real one, but look on Wikiquote and there it is: 枪杆子里面出政权), money is power, and the middle class will use it to obtain the education for their children that they feel most fitting, what the government plans matters little as far as this is concerned.
    As for whether a dictatorship that does everything everybody wants, in a free society this is impossible as everybody wants something different. It is only in a society where people are told what they should want by the government that these expectations may be met, this is authorianism.

  14. FOARP: Americans don’t put too much stock in strange names, one way or the other. Hyundai is impossible for most Americans to pronounce, since English lacks the “h-yu” sound. To 99% of the local population, it’s “hun-day”. But to just as many, swayed by decent engineering, style, warranty and gas mileage, and the gift of American marketing and salesmanship, it’s one phenomenally popular car. Let’s see whether Middle Kingdom can follow that act here.
    In the USA, Foxconn is ensconced in Harrisburg, Pennsylvania, in the midst of farms and Gettysburg and middle America, and other red-white-and-blue places. They have blended in with other business cultures around the globe. They’ve done a great job of being the commercial chameleon, and that’s what I’m talking about. Tatung could have done the same thing, as could dozens of other Chinese companies, if they had that chameleon capability. A name? Does Barak Obama sound like George Washington? As Albert Einstein said when criticized about his unkempt hair, “it’s the meat you buy, not the paper it’s wrapped in.” And I haven’t noticed anyone in America asking Yao Ming to change his name, which is now a household word here. No matter business, politics, sports — if you can play the game here, you’re in.

  15. @Todd – Point taken, marketing is something which really requires local expertise, it is the unwillingness of certain Chinese companies to trust foreigners in this which has hampered the success of Chinese brands outside of China.
    This is a problem that companies like Foxconn are still yet to grapple with. Foxconn makes the vast majority of its profits from OEM/ODM for companies like Apple and Intel. For Foxconn branded products to be a success outside of CN/TW would require trusting outsiders with the developing of local strategies, something that it’s rather warlordesque management structure makes it rather ill-equipped to do.
    However, it is worth remembering that American companies like McDonalds and Boeing, German companies like BMW and Siemens, and Japanese companies like Sony and Fuji have all been successful whilst unabashedly representing their countries of origin. An attempt at simply hiding the product’s origin (ala HSBC) either leaves people suspicious about where the product comes from or simply renders the brand bland and characterless.

  16. I am skeptical of the view that Foxconn could be seen as globally successful in this respect because of its “chameleon” presence in Harrisburg, PA. First, it is not a “Chinese” company, but a Taiwanese company in the corporate cultural sense (ie not political), and hence, its “warlordesque” management is of a uniquely Taiwanese character. Ask any local Chinese what it thinks of this management, and I assure you, it is not viewed the same as say a true Chinese tech company like Huawei. Second, while that management might work to some extent in China (and mostly because Foxconn is a behemoth), it clearly has failed to work well in other places like Brazil, Europe, and Mexico, simply because it does not trust outsiders, in facts condescends to them and forces its narrow style on all its global workers (e.g plenty of stories of high turnover in its ex China plants because of mismanagement or rather a too rigid Taiwanese management). For reasons such as this, Foxconn will never transform beyond its OEM/ODM character brandwise. Harrisburg is a anomaly, because the local management may be more Americanized by chance, not by design and the nature of the PA facility. Of course, this problem is not limited to the Taiwanese. Successful American brands do not always do well globally, because of their inability or unwillingness to adapt.

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