China's middle class has grown a lot in the past twenty years.
In 2000, 3% of the country's population was classified as middle class. The Center for Strategic and International Studies calculated that more than half of China's population had entered the country's middle-income category by the year's end.
China's middle class has grown as well as America's, in many ways. In its most recent middle-class analysis, the Pew Research Center classified half of the US population as middle class. The middle class is defined by many experts as those who live on $10 to $20 a day per person, which straddles the poverty line in the US.
The growth of China's middle class is a good thing, but some of the similarities it now shares with the US are less positive.
Max Zenglein, chief economist for the Berlin-based Mercator Institute for China Studies, told Insider China's middle class will soon face similar challenges to the US and European middle classes.
It's difficult to move upward, but there is a risk for China to move down. They might be hitting a ceiling.
The housing market is priced out of reach of many.
Housing prices are rising in both the US and China.
Home prices in the US have risen during the Pandemic. Home prices increased by 14.6% in April, the biggest increase in 30 years. In October, Goldman Sachs said that housing prices could surge another 16% in the year 2022, after hitting new highs throughout the year.
Ben Winck wrote for Insider that the US is running out of starter homes, and that contractors are more focused on expensive homes that are out of reach for middle-income earners.
Real estate prices in China have risen over the past two or three decades. In tier 1 cities like Beijing, Shenzhen, and Shanghai, housing prices grew at an average annual rate of 13.1%. Home prices in China started falling for the first time in six years in October, as market concerns sparked by real-estate giant Evergrande's debt troubles began to affect the market.
Despite the huge growth in China's home prices over the past decades, 80% of households in China are homeowners. The country has no shortage of homes, but the price of houses is out of reach for many. That's why younger generations of homebuyers are increasingly turning to personal lending networks to be able to pay the required 30% down payment on a home.
The director of China markets research for Rhodium Group told Insider that it's not a problem of housing availability. It's a problem of price and income in desirable places.
The middle class in Shenzhen is starting to look like America's.
The VCG is a contributor and the images are from the same company.
Household debt is rising.
Household debt in the US and China has increased because of the rising cost of housing.
The Federal Reserve says that household debt in the US has exceeded 15 trillion dollars. At the end of the year, it was $1 trillion higher. The typical American household has more debt than it did in 2000, according to the US Department of Housing and Urban Development. The median household income in the US is $79,000.
China's household debt is lower than in many developed countries, but has risen since the financial crisis, according to an economist.
China's household debt increased to 128% of income in 2020, according to a report. China's total household debt hit 70 trillion yuan at the end of October, Wright said, citing data from the People's Bank of China.
Household debt has increased so quickly that they're not easy to manage. Zenglein said that China's middle class has a combination of high leverage, weaker economic growth and lower income growth. Something has to give.
It is at risk of falling out of the middle class.
It's difficult for the middle class in China and the US to do better than their parents.
The US middle class is struggling. The middle class grew their income at a slower rate than the top and bottom 20% of Americans. The cost of living in the US went up as middle-class wages went down.
The number of American adults classified as middle class fell from 61% in 1971 to 50% in 2005. According to a paper from the nonprofit research group, over 2 million Americans fell out of the middle class in the last decade.
The middle class in China is difficult to maintain.
"For younger generations, they are coming from parents who came from the dark times in China's development and who improved every year significantly in wealth," Zenglein said. The new generation can't take for granted that they will be better off as a whole.
The trend has a wealth divide, but it's less relevant for migrant workers. It will be easier for their kids to have a better life than it will be for those from the middle class.
54 million people fell out of the middle class last year due to the Pandemic, and the plight of the middle class extends beyond China and the US.
Not a reflection.
The two countries' middle classes have their differences.
America's middle class is more established. It was the richest middle class in the world for a long time.
The role of homeownership in the US and China is not the same as it is in the US. Real estate for wealth and social standing is different in China than it is in the US. "If you don't have a house, you're not going to get a wife in China," Zenglein said. In China, 70% of household assets are tied to real estate, which is higher than any other developed country.
In China's developed, urban centers, the US-China similarities are more prominent than throughout the rest of the country. It's the biggest winners of China's economic success that are starting to look like the US middle class.
The resemblance between the two is strong, and it is stronger than it has been before.
If the property sector starts to weaken considerably, it will have an impact on the economy and standards of living in China.
"It's not a one-to-one match, but it's getting into an area where the similarities are increasing," Zenglein said of the US and China middle classes.
