• Analysis

The rise of a middle-class society and its implication for China-EU relations

The ongoing demographic transition in China has generated critical dynamics not only for the domestic socio-economic transformation, but also for China-EU relations. While China’s population is ageing rapidly and has resulted in immense social and economic stress, the explosive growth of China’s middle class is expected to become one of the most productive and innovative driving forces in the development course set by the 13th Five Year Plan (FYP).

China’s burgeoning new middle-class society is mostly a ‘good news story’ for China, the EU and the China-EU relationship, but it also generates some challenges that need to be addressed. This commentary begins with a brief note on some important characteristics of China’s new middle-class society, followed by a discussion on two strategic responses the EU may consider: market penetration and social engagement. It is argued that the EU will have to build new capabilities to accompany the growth of a new middle class. Therefore, the EU should play a more active role not only in meeting the enormous purchasing power of China’s middle class, but also in accompanying the progressive evolution of socio-political conditions that would shape the aspirations of this new middle class. In general, a productive and engaged middle class will make the Chinese economy and society stronger, while also consolidating China-EU relations in the long run.

The middle class is an evolving social category in China, which is made up of diverse social actors ranging from self-employed private sector entrepreneurs to salaried government officials and professionals. Despite the fact that there is no clear definition of an individual who is considered to be middle-class, it is widely predicted that China will become the world’s largest middle-society market by 2020. Central to this huge surge is China’s rapid industrialisation and urbanisation. China’s rebalancing towards domestic consumption as a source of economic growth during the 13th FYP will stimulate the further expansion of a consuming class that is overlapped with the formation of a middle-class society.

Apart from the sheer size of Chinese consumption and its middle class, there have been some important structural features regarding its composition and attitude. In particular, the upper middle class is poised to be the major engine of consumer dynamics over the next decade, which will drive the development of a more attractive business market. Regional distribution of the middle class is also changing. This is due to more and more middle-class consumers emerging in the smaller and inland cities.

Equally notable is that the millennials born after the 1980s will become a key component of China’s middle-class society. Alternatively called ‘Generation 2’, they were born and raised in relative material abundance, with high expectations for further growth in their standard of living. Market research has found that this group appears to be much more confident in consumption than the older generation. Meanwhile, as the ‘little emperor generation’ associated with the one child policy, millennials’ social attitudes tend to be worldly, more risk averse and individualistic. This would significantly reshape Chinese society and its economy.

China’s transitional middle class presents new market opportunities for both domestic and EU companies. It has been generating new consumer markets and new opportunities for EU businesses – in tourism, advanced education, and the myriad of other services that EU companies have been successfully selling to China. With comparative advantages in advanced manufacturing and services, education products, matters of finance and other professional services, EU exporters in these sectors will continue to benefit from China’s growing middle-class market.

Sustainable market penetration relies on a nuanced understanding about the distribution and aspirations of the Chinese middle class. Companies can tailor their product portfolios to the needs of sophisticated and diversified consumers. Public authorities may work with its stakeholders in creating a more flexible and adaptive environment for business ties. In the field of tourism, for example, a more relaxed visa-application process is not sufficient, while there is a particular demand for more cultural sensitivity and cross-culture communication. Furthermore, understanding China’s regional and city sub-cultures are crucial to market strategy.

While China’s middle class in general maintains relatively strong ties with the Party-state, there is a creeping feeling of insecurity. In an age of uncertainty, middle-class society tends to economically anticipate further expenses of the household and extended family. They may save a particularly high share of their disposable income in anticipation of hardship, given the underdeveloped welfare system and the rising cost of healthcare, education and housing.

There are also profound political implications. While the democratic aspirations of China’s new middle class remain debatable, socio-economic pressures caused by factors such as skyrocketing housing prices and environmental degradation has generated widespread cynicism and shattered public confidence in the government.  With the growing right consciousness of the new middle class, discontents have become ever more evident in some policy domains such as environmental protection, education and public health. There is a political risk that this middle-class society will eventually become radically politicised. As a consequence, domestic disturbances would have negative consequences on China’s foreign policy, including China-EU relations.

To address the multi-dimensional interests of China’s middle class and make it a constituency for social stability and economic prosperity, the Chinese government will have to develop new policy tools to secure and safeguard security and wellbeing, namely in order to balance different group interests and deliver a viable framework for social engagement. Acknowledging the principle of non-intervention in internal affairs, the EU should still be able to play a constructive role by sharing its experience of implementing successful social cohesion in Europe, specifically by creating a sense of belonging, trust and the opportunity of upward mobility for all members of society.

In conclusion, middle-class society in China will play a transformative role in the social and economic development that has been articulated in the 13th FYP period. In the context of deeply interconnected trade and economy between China and the EU, the influence of China’s middle class should not be underestimated. Overall, China-EU relations will benefit from a sizeable, stable and moderate middle-class society. Maximising the economic potentials not only depends on a nuanced market strategy, but also on a social engagement strategy that can facilitate the building of China’s social solidarity and stability. This will enrich and consolidate the China-EU partnership in the long run.

This article is part of Friends of Europe’s Policy Paper ‘EU-China: New Directions, New Priorities‘ which brings together the views of Friends of Europe’s large network of scholars, policymakers and business representatives on the future of EU-China relations. These articles will provide immediate input for the EU-China Summit on 12-13 July 2016, but their value and relevance goes well beyond this year. They set the tone for EU-China relations over the next decade.

IMAGE CREDIT: CC / FLICKR – trevor.patt