China’s middle class continues to swell: the National Statistics Bureau (NSB) says the country’s “middle-income bracket” now includes at least 400 million residents. Therefore, Beijing should, said the NSB, pin more hope on their sheer consumption power to help the nation spend its way out of the lingering malaise from Covid-19.
NSB spokesperson Fu Linghui said at a State Council press conference in September that people who earn 60,000 yuan (US$9,076) per year, or 5,000 yuan each month, are affluent enough to be considered middle class.
Meanwhile, Chinese netizens are complaining on platforms such as WeChat and Weibo that they are just scraping by on monthly incomes of 1,000-2,000 yuan this year because wage growth has been stalled by the economic slump.
The NSB is thus seen as weaving an alternative narrative to present a rosy picture of China’s bulging middle class and its members’ spending potential to contradict Chinese Premier Li Keqiang’s sobering revelation at his annual press conference in May, following the conclusion of this year’s parliamentary session. Back then, a straight-faced Li reminded reporters that 600 million Chinese, almost half of the total population of the world’s second-largest economy, were still living at the subsistence level with an average monthly salary of 1,000 yuan or even less.
There has since been a debate among netizens and observers about whose take on the situation – the NSB’s middle class data or the premier’s revelation about the working poor – is more reliable.
Yet a paper from a state-backed institute urging higher incomes for those at the bottom rung of China’s working class may suggest a change of tack in Beijing’s consumption-boosting policymaking to favor the poor. The report has been syndicated by Xinhua and the Economic Observer, an influential financial weekly popular among officials and senior executives.
Liu Yuanju, a senior research fellow with the Shanghai Institute of Finance and Law, a semiofficial think tank, noted in the policy recommendation report that policymakers should ditch their fascination with the middle class and the rich and instead tap the “tremendous” consumption potential of the nation’s poorest.
“The consumption demand from the low-income group is the most sustainable demand to drive the ‘internal circulation’ and thus the Chinese economy… If a person who makes 1,000 yuan a month and is living paycheck to paycheck can see his income increase to 1,500 yuan, then very likely he will spend the extra 500 yuan on food and the items he needs most but in the past cannot afford to pay… If we multiply that by the premier’s figure of 600 million, then the additional consumption demand created by the poor can be immense,” said Liu.
The researcher argued that increasing the income of the middle class would be difficult, and that much of their additional income could end up sitting in bank accounts or fueling stock or property speculation.
He said Beijing should put the focus squarely on the working poor, since the cost of living is weighing most heavily on those in the lowest income bracket.
“China’s massive low-income group holds the key to Beijing’s imperative to spawn more consumption as until now, many of them want to spend but have too little income… Many of them are spending almost all of their scanty wages on daily necessities or are even turning to online loan sharks to make ends meet. By increasing their monthly wages by just a few hundred yuan, their lives can have a big difference, and hence China’s overall consumption picture,” said Liu.
With the report being carried in numerous papers across the nation, more policy wonks and scholars, including those with the State Council’s Development Research Center, have joined the chorus calling for Beijing to raise the incomes of poor people, which has already been heeded.
At a State Council press conference on Friday (November 6), senior officials with the People’s Bank of China (PBoC), the nation’s central bank, as well as the China Banking and Insurance Regulatory Commission (CBIRC) announced measures to make the nation’s lucrative banking sector share their profits with SMEs and the masses.
PBoC Deputy Governor Liu Guoqiang was quoted by Xinhua as saying that Chinese banks had waived fees, reduced interest payments and extended maturing loan payments totaling 1.25 trillion yuan (US$188.5 billion) for small businesses and individual clients. The goal for the entire year would be 1.5 trillion yuan.
Liu said he hoped the central bank’s bid to leave the money with a big swathe of small businesses could see the wealth trickle down to their frontline employees and thus boost their income and in turn their consumption.
The PBoC’s latest push for banks to give part of their earnings back to their cash-strapped clients is seen as a response to widespread accusations against banks – in particular, state-owned lenders – that are perceived as cold profit machines amid the Covid-induced economic downturn.
The Chinese central bank previously admitted that lenders had made disproportionately large sums of money from numerous SMEs and other shoestring businesses that, as a whole, employed the most people in the nation’s jobs market.
Also, CBIRC’s Deputy Chair Liang Tao revealed at the same press conference that, since more banks would charge fewer fees and lower the interest on loans for SMEs and individuals, the banking watchdog’s renewed “regulatory storm” targeting online lending companies would not cause any collateral damage to small businesses that used to rely on these online platforms for expensive loans.
Xinhua reported that with banks offering SMEs and the working class easier access to loans, the watchdog had moved to shut 5,000 such internet-based lenders and loan-issuing agencies and there were only three still in business.
Last week, the Chinese banking and securities watchdogs mounted a shock crackdown on Ant Group, an online financial service provider controlled by billionaire Jack Ma, and the stiffer scrutinization of loan-issuance and interest rates, as well as a higher capital ratio requirement, ultimately scuppered Ant’s $35 billion IPO, which would have been the world’s largest in years.