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My Take
China
Josephine Ma
Josephine Ma

My Take | Why China needs to mind the earnings gap

  • Beijing is looking to the middle classes to drive future economic growth – but this group is facing a range of economic pressures at present
  • Problems such as the property and stock market slumps, the sluggish recovery and lack of jobs for the young have put many in a precarious position

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Many young Chinese are struggling to find a good job in the current climate. Photo: Xinhua
Josephine Ma
China’s Premier Li Qiang has been trying to reassure international economic and foreign leaders about the Chinese economy’s strength, pointing to factors such as a supersize consumption market boosted by a rapidly growing middle income group.
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In a recent speech to the World Economic Forum in Davos, Li told his audience that the number of people in this bracket is expected to double – from 400 million to 800 million – in the next decade or so.

China hopes that their purchasing power will become one of the main drivers of economic growth in future – but this group is currently enveloped in gloom as a result of factors such as the property market meltdown, slumping stock markets, the slow recovery in the wake of Covid-19 and – especially for younger Chinese – the struggle to find a decent job.

The property meltdown hit the middle classes especially hard as 70 per cent of urban dweller’s family wealth in 2019 was stored in properties, according to the central bank, and many families are burdened with heavy mortgage loans.

Meanwhile, wages are falling in some places. The average salaries offered to new hires in 38 of the biggest cities fell to 10,420 yuan (US$1,454) a month in the fourth quarter of last year compared with the same period 12 months earlier.

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According to data from online recruitment platform Zhaopin compiled by Bloomberg this marks a drop of 1.3 per cent – the sharpest fall of its kind since 2016.

These challenges have raised concerns about whether China’s middle class will shrink, as many of those in the middle income bracket – defined as households earning between 100,000 to 500,000 yuan (US$14,000-US$70,000) a year – are vulnerable to income shocks.

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