When a pyramid is not an olive
By Wu Zhong, China Editor
HONG KONG - The Chinese Academy of Social Sciences (CASS) is China's top
research center in social sciences and humanities funded by taxpayers' money.
Directly under the State Council, China's cabinet, the status of CASS is even
higher than a ministry in the administrative hierarchy. As such, it functions
as a top think-tank to the central government and many of its studies are used
as references by leaders in setting policies.
This, however, is no guarantee that all research done by CASS is sound and
accurate. This is probably because in general social sciences are still not
exact disciplines and often different results
could be derived on the same topic. But in China's circumstances, CASS
researchers may at times also want to cater to the wishes of policymakers.
To cope with the negative impact on the Chinese economy of the global financial
crisis that started in the United States in 2008, the government set a policy
to speed up economic restructuring by boosting domestic consumption to reduce
the country's reliance on export and re-export industries.
But to boost domestic consumption, people's incomes must first be increased.
For this purpose, Beijing announced earlier this year a goal to double urban
residents' incomes in five years, though it stopped short of saying how this
could be attained. For Beijing, boosting people's incomes also has important
political significance, as a growing middle class could help ensure social
On August 3, CASS's Institute for Urban and Environmental Studies publicized
its 2011 Blue Book of Cities in China, claiming that, by 2009, 37% of urban
residents had already become middle-income earners. In other words, they now
belong to the middle class. This conclusion immediately aroused deep suspicion
and severe criticism - it sounds too good to be true. Not only does it deny the
reality that not as many urban residents feel they are enjoying middle-class
life, it also does not tally with other government statistics.
The Blue Paper says that in 2009, middle-income people in cities had reached
230 million, accounting for 37% of the total urban population. In Beijing
municipality, this figure was placed as high as 46%.
China has just revised its personal income tax law to raise the minimum taxable
income from 2,000 yuan to 3,500 yuan (US$313 to $547) a month. Statistics from
the Ministry of Finance show that out of the total 310 million wage earners,
only 24 million will have to pay personal income tax under the new law. That
means more than 90% of wage earners in cities earn less than 3,500 yuan per
month. By no means can an income lower than the minimum taxable amount be
classified as middle income. Nor can a person receiving less than the minimum
taxable income be called a member of the middle class.
According to the National Bureau of Statistics (NBS), the urban population
totaled 666 million in 2010, with an average per capita income of 19,109 yuan
for the whole of the year. But the wealth distribution is very uneven. Of the
666 million, 24 million are high-income people who made a total of 4 trillion
yuan last year, or 160,000 yuan per head. The remaining more than 640 million
urban residents made 8.88 trillion in total, or less than 15,000 yuan per
person for the whole year. In other words, more than 90% of urban wage earners
made less than 2,000 yuan a month last year.
The NBS statistics tally well with those of the Ministry of Finance, that over
90% of urban wage earners belong to the low-income class.
How, then, did the CASS Blue Paper research team arrive at its conclusion? It
turned out they used Engel's Coefficient as the sole yardstick in the study.
This measures the proportion of income spent on food. The less one spends on
food, the better off one is. So according to the Blue Paper researchers, a
person who spends only 30% to 37.3% of income on food is categorized as
middle-income. Interestingly, the NBS in 2006 had already forecast that the
Engel's Coefficient in urban families would drop to 37% on average. And now
CASS says 37% of city people are middle class.
Following this measurement, the Blue Paper even optimistically predicts that by
2030, middle-income people will account for 50% of the urban population. In
other words, China is quickly moving from a "pyramid" to an "olive-shaped"
social structure (in an "olive" society, the middle class makes up 60% or more
of the population).
Solely using Engel's Coefficient is risky. It is true that Chinese people now
may spend less of their income on food, but they have to spend more on housing,
education, medical care and things. Thus, Engel's Coefficient may appropriately
apply to people or families who already own their homes and other durable
goods. Otherwise, there is no way to call a person or family middle class, even
if they only need to spend some 30% of their incomes on food.
For example, in Beijing, the monthly rental for a small, single-room flat is
1,500 yuan to 2,000 yuan. A two-bedroom unit can easily cost 3,000 yuan to
4,000 yuan a month. The average monthly wage in the capital city is 4,200 yuan
this year, according to the Beijing municipal government.
So for a core family of three (a couple with a child), suppose both the husband
and wife work and earn average wages, they have to allocate half of their
monthly income to housing. With another 30% spent on food, they have barely
enough left for raising the child. How can they be living a middle-class life?
No wonder that after the Blue Paper came out, many young netizens wrote:
"Without our awareness, we are being turned into middle class!"
Sociologists also point out that the criterion the Blue Paper adopts at best
can only measure whether a person or family is "out of poverty". Considering
the reality in China today, at least 80,000 yuan per person a year could be
considered a middle-income for a better quality life.
In sociology, it is generally believed that an "olive" society tends to be the
most stable as the middle class is generally content and does not resort to
radical action unless its quality of life is under threat. The incessant social
unrest in recent years suggests there is still a long way to go for China to
become an "olive" society.
The thinking behind Beijing's decision to boost people's income for economic
and social restructuring thus is correct. But to achieve this goal, real
efforts need to be devoted especially to continuous economic development and
reform of the current wealth distribution system. It is counter-productive to
artificially create a growing middle class by manipulating figures.
To be fair, apart from its misleading conclusion about the middle class, the
Blue Paper rightly pointed out some serious problems in cities and suggested
possible solutions. Issues include skyrocketing housing prices, worsening
traffic jams, the lack of a sound social security network, worsening
environmental pollution and problems with education and medical care.
However, this is overshadowed by the report's middle-class boast, which has
drawn overwhelming attention from the public.
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