No one measure can summarize, but the weight of evidence tells a sad story of decline. China’s once optimistic and confident middle class is losing ground and, in many cases, slipping back toward poverty.
This matter presents the Chinese Communist Party (CCP) with a serious problem. It leaves the impression that the nation’s leadership has failed to uphold its end of an implicit contract with the Chinese people, in which they will quietly tolerate the Party in power, and the Party will deliver them prosperity.
So far, the public has taken a passive approach to the situation, cutting back on spending and trying, against the odds, to rebuild wealth. If things go to extremes, there is no telling how the Chinese people will react. There was, after all, considerable violence during the recession of 2009.
The primary cause of the problem is the country’s ongoing property crisis. It has plagued Chinese economics and finance since 2021, when the giant residential real estate developer Evergrande announced that it could not discharge its financial obligations. The financial interruptions brought by this failure and several more that have followed in the years since have depressed the pace of home building and home buying.
More important for the middle class is how these matters have depressed the value of existing homes, which are a major source of household wealth for most Chinese, especially the middle class. Last December, for instance, the average price for an existing home in 70 medium and large Chinese cities fell 6.3 percent from the year before, the steepest drop since the start of this data series in 2011.
Probably the most telling bit of evidence comes from a recent finance ministry report on Beijing’s income tax revenues. Personal income tax receipts for January and February, the most recent period for which data are available, equaled about 362.2 billion yuan ($45.1 billion). That figure was 16 percent below 2023 levels. Still more telling is the ministry’s explanation of why revenues fell. Since individuals earning less than 100,000 yuan (about $634) a year effectively pay no personal income taxes, the drop in individual income tax revenues reflects a movement of households to incomes below this level. And since this 100,000-yuan annual income figure also marks the low end of what China considers middle class, the revenue shortfall also gives a sense of how many have fallen out of this coveted status.
Data collected by Bloomberg News on Chinese starting salaries tell a similarly sad story. Starting salaries fell 1.3 percent during 2023’s fourth quarter, the most recent period for which data are available. That constituted the third straight quarter of decline. Bonus data is even more disappointing, falling on average some 17.5 percent from the year earlier. Bonuses fell even further in the internet and telecommunications sector, 27 percent, and further still in the financial sector, 35 percent.
In light of such information, it is hardly surprising that luxury sales have dropped off a cliff. Gucci reports that its China sales have slumped 20 percent this quarter from year-earlier levels. Swiss watch exports to China have fallen 25 percent from prior year figures. High-end restaurants in China report similar declines, especially since traffic has picked up lower-end eateries. In another telling anecdote, second-hand piano inventories have risen so high they have put significant downward pressure on prices. A piano in the home is a marker of middle-class status; this inventory glut speaks to how many have given up.
Nothing in this picture offers the least encouragement for China’s economic prospects. For the middle class, such as it is, the theme is to stay home, cut spending, and try to rebuild savings. For Xi Jinping and the rest of China’s leadership, who have implicitly promised the Chinese people prosperity, this troubling picture should be unsettling, to say the least.
