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If China’s middle class continues to thrive and grow, what does that mean for the rest of the world?
Hundreds of millions of Chinese have become part of the middle class in the past few decades. The great and formidable accomplishments of AP Photo / Ng Han GuanChina over the past four decades have led scholars and politicians to debate whether the decline of the West – including the United States – appears to be the face of the world’s dominant political and economic force unstoppable rise of inevitable is the east. The COVID-19 virus hit China first and hard, halting its rapid economic growth for the first time since the Great Recession. However, China’s economy grew by a whopping 18.3% in the first quarter of 2021 compared to 2020, making it the second largest economy in the world. Many now believe that China, instead of the US, could drive the global recovery from the pandemic. It is not yet clear that this current recovery means that China has regained its former rate of growth. However, I believe that this will spark global competition in which the form of government will have a dominant influence on global affairs in the decades to come: Western-style democracy or China’s authoritarianism. My research and that of others examine two questions: Will China solve the greatest challenges to maintain its 7 to 8% annual growth rate in the four decades that its growing world power has fueled? If China can keep up this pace, will the rest of the world benefit? The “Middle Income Trap” In 1978, Deng Xiaoping initiated transformative reforms that opened China to the international community and foreign investment. In 2001, China joined the World Trade Organization and became an avid participant in global markets and value chains. As a result of these and other economic policies, China has succeeded in rapidly moving from a low-income nation to a middle-income nation. In other words, globalization has certainly helped China in many ways so far. After generations of endemic poverty, hundreds of millions of Chinese citizens have seen wage increases that have resulted in higher disposable incomes. Now, after paying for basic necessities, they have extra money to save or spend on consumer goods such as trendy clothes or tech gadgets. The increases are now spreading beyond the urban centers. The number of both rural and poor citizens is falling dramatically, falling by 12.89 million between 2016 and 2017 alone. Rural consumer spending is increasing. As increased agricultural production eases famine fears, daily life in rural communities improves, while the expansion of non-agricultural rural industries provides them with alternative sources of income. This growing material comfort has led to growing happiness about life in China. Nonetheless, once a country like China has reached middle-income status, it can fall into a trap: it cannot compete with other nations in the knowledge-based economy – typically in the province of high-income nations – or in the low-wage economy it has left behind . In an influential study of this “middle-income trap” for a number of countries, the World Bank found that out of 101 middle-income nations in 1960, only 13 had achieved high-income status by 2008. In part, this has been because of what some refer to as the “low productivity balance”, with a relatively small proportion of the total workforce employed in high-skilled occupations such as medical service providers, engineers or managers, rather than low-skilled professions such as farm workers or factory workers or retail salespeople and cashier. The remaining 88 countries were either poorer or appeared to be of middle-income status. In addition, many manufacturing companies, large and small, are responding to China’s rising wages by relocating their operations to countries with lower labor costs such as India and Vietnam. Every year 40,000 factories across China shut down, shedding jobs in droves. This means that China has milked low-skilled production for all of its purposes and needs new guidelines to keep growth going. China’s Educational Challenge The world is increasingly divided into two categories: well educated and poorly educated countries. Since the end of World War II, industrialized nations, which have also invested heavily in improving the quality of their high schools, vocational schools and universities, have largely avoided the middle-income trap and moved to high-income status. In Singapore, for example, investments in the education system of 12 to 35% of the annual state budget have resulted in a well-educated, professional and thriving middle class that has anchored sustained economic growth. Similarly, South Korea has invested heavily in education, spending an average of 3.41% of its gross domestic product between 1970 and 2016. This has led to the emergence of a well-trained workforce who have fostered the country’s economic development for many decades. Some expert watchers believe China will likely take similar steps successfully, which gives it a good chance of escaping the middle-income trap. To do this, however, the leadership must make massive nationwide investments in their education systems, ranging from improving rural and vocational schools to improving universities to expanding access to urban education opportunities. It usually takes a long time for these investments in education, what economists call “human capital improvements,” to fully develop. In this transformation of the workforce, if China maintained its average annual growth rate of 7%, its per capita income would be around $ 55,000 by 2035, which is almost the same as the U.S. per person income in 2014. The U.S. Workers had at least a college education and 89% had a high school diploma. Even an optimistic statistical analysis shows that China’s level of education will be far lower by 2035. Therefore, the Chinese government will only realize its hope of annual growth of 7% over the next 20 years if China succeeds in establishing a numerical ratio between human capital and per capita income that is considerably higher than the typical global one that has prevailed so far Experience. Another challenge is that China is an unjust country with the deepest country-city gap in the world. According to the Chinese “hukou” or household registration system, all citizens are assigned to either a rural or an urban hukou at birth. This system, which affects practically every aspect of one’s life, privileges urban status by providing urban hukou owners with much greater and better educational opportunities. As a result, 260 million Chinese hukou owners do not have access to the superior education offered in cities. Even if they move to urban centers to work, they are left behind because their hukou forces them to live as second-class citizens in their adopted homes. So China must seriously reform the hukou system if it wants to achieve a secure position among the “well-educated” nations of the world. [Understand key political developments, each week. Subscribe to The Conversation’s election newsletter.] What would a high-income China mean for the rest of the world? Well-known Chinese scholar and Stanford University professor Scott Rozelle said that “the whole world will be much better off with a prosperous China.” He argues that the world would benefit from continued access to many inexpensive goods, while China would benefit from it itself, because increasing personal wealth would dampen civil unrest. But such success could also suggest to developing countries that socialism with Chinese characteristics is a more desirable model of government than democracy practiced in the West when it comes to lifting millions out of poverty and achieving broad economic growth and development . The Chinese Communist Party wants to remain a firmly authoritarian government. In China, a huge surveillance state tracks people’s faces, scans their phones and can even tell when someone has left their home. The government’s persecution of Uyghur citizens with a Muslim minority in the Xinjiang region also provides insight into China’s interaction with nations and peoples that it displeases in a world order that it dominates. In the meantime, China is already expanding its international clout through its “Belt and Road Initiative”, in which billions are invested in development projects in Europe, Asia, East Africa and the western Pacific. China is gradually demanding a dominant political role on the world stage and is beginning to maintain it. It is too early to say whether China will continue to maintain rapid economic growth or make the necessary investments and social reforms to move most of its citizens into the middle class. However, given its determination and progress over the past few decades, it is plausible that by mid-century a China on par with the US and its coalition of democracies in terms of wealth and political influence can become a fact. Such a China could well have the power to break the current international order into two opposing and irreconcilable visions of the future of Asia and the world. This article was republished by The Conversation, a non-profit news site dedicated to sharing ideas among academic experts. It was written by: Amitrajeet A. Batabyal, Rochester Institute of Technology. Read more: Why China’s Attempts To Stifle Foreign Media Criticism Are Likely To Fail. Rethinking the US-China Struggle: Is China Really Threatening American Power Abroad? Amitrajeet A. Batabyal does not work for any company or organization that would benefit from this article, does not consult any stocks or companies that would benefit from this article, and has not disclosed any relevant affiliations beyond their academic appointment.