The country wants to become a modern society with a strong middle class, but can this be done without everyone on board?
Outside a migrant worker’s residence an hour’s drive away from Shanghai, Zhang Weihua and friends are excitedly discussing refrigerator prices. Most want to buy one second-hand to save money.
It has been eight years since Zhang and her husband left their lives as farmers in rural Henan province and set sail for up-and-coming Suzhou Industrial Park. Their hope was to take at least one step up the ladder of Chinese society – from farmer to migrant – and, if life treated them well, to the aspiring middle class.
The Suzhou Industrial Park (SIP), originally a joint venture between the Singaporean and Chinese governments, is a flashing example of China’s urge to modernise, industrialise and urbanise. “We have experienced an annual average growth of a whopping 30 percent and created a better life for a lot of people,” says Liu Jie, the director of SIP’s media centre. “People can really enjoy modern life here.”
Liu is standing on the top floor of the SIP administration building looking out over this kingdom of manicured parks, shopping malls, five-star hotels, Fortune 500 companies’ factories and palm-lined avenues – Singapore-style. The crown jewel in the skyline of lakeside high-risers is the new landmark tower called “The Oriental Gate” – or “Giant Long Johns”, as it’s dubbed by cheeky locals noting its similarity to a set of underwear.
|“Urbanisation is one of the most important drivers for China’s sustainable growth in the next one to two decades.“
– Haibin Zhu, JP Morgan Chase economist
Fifteen years ago, this area was covered in rice paddies. Today Suzhou is considered a national success story. It’s transitioning from an agricultural, manufacturing, export-oriented economy to an innovative, high-value, service-oriented economy. Now, China is hoping to replicate what has happened here in the rest of the country, and urbanisation is considered key to making that happen.
“Set amidst the economic slowdown and this quarter’s near-miss GDP growth target, China is looking for ways to increase domestic demand and thereby making their GDP growth less dependent on investment,” says Haibin Zhu, JP Morgan Chase’s chief China economist. “Urbanisation is one of the most important drivers for China’s sustainable growth in the next one to two decades.”
Urbanisation is thought to increase the demand for infrastructure, improve the quality of public services, and ultimately expand China’s consuming middle class and hence boost consumption. “Urbanisation will increase consumption, especially if it is combined with reduction in income inequality,” Zhu says. Today only 18.2 percent, or about 247 million people, qualify as middle-class in China, according to Brookings Institute economist Homi Kharas.
Some experts argue that China’s current middle classes are not yet truly powerful consumers. Kam Wing Chan, a professor of geography at the University of Washington, points out that although the number of college-educated Chinese has grown, many of them – especially the migrants – do not end up not making very much money.
The hukou system
Chinese migrants do not become fully fledged urban citizens upon arriving in a city. The hukou or household registration system officially identifies a person as a resident of a certain area (specifically, the birthplace of one’s mother) and tags the person as an agricultural or non-agricultural worker. Social rights are not portable across provinces, so most of the migrants who come to the cities do not have access to basic public services. Being “outsiders”, they have to pay for services such as health care and education for themselves and their children.
Inequality in China stems largely from rural-urban gaps in access to jobs and services. Further complicating the matter is the fact that the quality of public services is lower in rural areas. “This doesn’t only create large differences between urban and rural residents, but it also creates two classes of urban citizens,” Chan points out.
In the early Mao era, migrants weren’t allowed to enter the cities, never mind work there. After economic reforms, it became possible to unofficially migrate and take a job outside one’s hukou district. However, the police are still allowed to round up people without a valid hukou.
“The hukou system has supplied China with a huge pool of super-exploitable, cheap labour,” Chan notes. The system has propelled China’s manufacturing-based economy, but with Beijing’s changing ambitions, many policymakers and economists regard the system as obsolete. For China to achieve its goal of expanding the middle class and boosting consumption, it needs a critical mass of skilled labour rather than cheap labour.
Three decades ago, less than one-fifth of China’s population lived in cities; today half do. According to Chi Fulin, executive of the government think-tank China Institute of Reform and Development, China’s middle class is expected to swell to a whopping 607 million people by 2020. Most people pouring into urban areas seek work and higher wages; others have been resettled as part of a government initiative to free up land and “give rural migrants urban amenities”.
The hukou system has helped to control the influx of rural migrants to the cities, maintained social stability and, at least partly, avoided favela-like outskirts next to China’s bigger cities. But a joint report by the China Institute of Reform and Development and the World Bank argues that the hukou system in the long run will impede growth by lowering labour mobility.
However, reform could be difficult: local governments do not have the incentives or resources to extend public services to migrants and their families. A major restructuring of China’s fiscal system would be needed in order to reform the system, the report argues.
“If China wants to create a truly powerful consuming middle class and succeed with urbanisation as a key driver to growth, the hukou system has to go and the fiscal system must be reformed,” Chan says. His view is shared by Zhu, who explains: “Only then migrant workers will be allowed to move up the social ladder, access better education, compete for the best jobs and receive higher wages.”
Aiming for the middle class
|“We have running, hot water and electricity so this is better than what we had at home.“
– Zhang Weihua
“When we came to Suzhou, we had to leave our two children with my parents in the Henan Province because of the hukou restrictions,” Zhang says. “There was no way we could have paid for our children’s schooling and health care in the city with our wages. Then we might as well have stayed farmers.”
But the income she earns in Suzhou has enabled her to pay for her daughter’s education. Now her oldest daughter studies engineering at university. “I couldn’t be prouder,” Zhang beams. Her hard work as a waitress, kitchen assistant and cleaner has finally paid off. Zhang’s daughter is aiming for the middle class.
Zhang rents a modest apartment in the central SIP area for 1500 rmb ($240) per month. Her apartment boasts a hallway that also serves as kitchen, a living room that serves as bedroom, and a drafty bathroom. “We have running, hot water and electricity so this is better than what we had at home,” she says. Her monthly wage is 4,200 rmb ($670). After paying rent, the rest of the money goes to her in-laws, her parents, her daughter’s education, or to savings. Especially for the migrants, savings are a safety net in case of health problems or job loss. China has the world’s highest savings rates.
“For the Chinese New Year’s hongbao [a bonus from one’s employer], I might finally buy a used refrigerator. It will make my life a lot easier as I won’t have to go to the market every day,” Zhang says. Maybe one day, she will be able to afford a new fridge. Until then, she will have to rely on her children to have a go at entering the middle class.
Meanwhile, not everybody is as lucky as Zhang. Until recently, even the ultra-modern SIP had shantytown areas. New arrivals with no money and no jobs moved into deserted houses and set up a lively living quarter with weekly markets amid rubble and garbage. Most of these areas are gone now. One man said he didn’t know what to do when “his” house was demolished. “Since it wasn’t my house in the first place, my family is not entitled to any compensation. But at least I have a job now,” he says.