China’s Roaring Twenties — its new middle class and the decline of farming

The contrarian in us gets scared when we read pieces like this by Trudy Rubin last week:

A new generation of urban Chinese has emerged that is as crucial to the future of U.S.-China relations as disputes over textile imports or competition for oil. The Chinese equivalent of yuppies, they have the name “xiao zi,” or “little bourgeois.” This generation will shape the Chinese superpower that will emerge in the coming decades. Its members are addicted to instant messaging; change their cell phones every few months; vacation in Europe, Thailand, Australia and Saipan. Post Sept. 11, it has been more difficult to get American visas, so fewer travel to the United States (although it would be smart politics to roll out the red carpet). At Beijing’s airport bookstores, they buy Jack Welch’s “Art of Leadership,” Bill Clinton’s autobiography, or “The Chinese Century.”

China’s new middle class may already equal the population of the United States, so the “xiao zi” probably number in the tens of millions. They are too young to have memories of the 1989 Chinese government slaughter of students demonstrating for democracy in Tiananmen Square. Many are quite nationalistic, but their hostility seems directed at Japan more than at the United States.

They appear less interested in Chinese political reforms than in their economic futures. Here’s how Sijia Duan, a vivacious student at Peking University’s School of International Studies, put it: “I’m concerned about finding a job, and I don’t care much what happens in the United States or outside. I like Kentucky Fried Chicken, going to bars, using MSN to chat with foreign friends, and going out with handsome guys, but I have to study first. Chinese students are the future of China, and we are so hardworking compared to U.S. students.”

Surely these Chinese students sound more serious and sober than the American youth of the Roaring Twenties (as described in our high school history book, The American Pageant, at page 788), with their “gin-filled hip flasks,” and “houses of prostitution on wheels.” But they are living in an economy far more unbalanced than America in the 1920’s, and neither they, nor Trudy Rubin, have a clue that this is so. And in 1929, no one in America thought there was the Great Depression just around the corner. As we have reported, the Chinese middle class is still very small, much smaller than Trudy Rubin makes it out to be, though its gains are impressive and visible in the sights that have captivated Rubin. The average American makes more than 10x what the top 20% of the Chinese population makes.

The farm comparison

One way of understanding the comparative economic development of the United States a century ago, and China today, is through employment in agriculture. In primitive economies, a high proportion of people are employed in low productivity activities like traditional farming. As economies develop, these numbers decline; less than 2% of Americans are farmers today. One of the great periods of farming’s decline in America was in the early part of the twentieth century, when great cities were built with huge skyscarpers, new technologies were rapidly introduced, and young people moved to the cities to earn fame and fortune. Sounds a lot like China today, doesn’t it? But China’s development is far more unbalanced today than was that of the US a century ago.

The Roaring Twenties in America was a time of marked decline in farm living and work:

Prior to World War I, 42% of all Americans lived on a farm. By the end of the twenties this percentage had dropped to 25%. Prior to World War I only 7% of all Americans completed High School. By the end of the ’20s this percentage had jumped almost six-fold to 41%.

So it is in China:

China’s labor force is undergoing a historic shift from farms to factories and service trades with the number of farmers dropping 20 percent from 1979 to 2001. Figures released by the National Bureau of Statistics (NBS) Monday show that those working in primary industries accounted for 50.1 percent of total labor force at the end of 2001, in comparison with 70.5 percent in 1978.

Taken from the perspective of the population as a whole, China is nowhere near the economic development that the United States experienced almost 100 years ago. Half of China lives dirt-poor, on less than a thousand dollars a year, on farms. By contrast, only a quarter of Americans still lived on farms by the time of the Crash. Our point is this: thinking you understand China by seeing its sparkling new skyscrapers, business hustle and bustle, and the energy, drive, and new prosperity of China’s urban youth in its growth cities is a mistake.

We are not forecasting a Crash or Depression for China. The wealthy Chinese people are not leveraged the way many Americans were in 1929, and, just as important, the world’s governments and central bankers understand much better how to prevent credit crunches from becoming Depressions today. We are merely saying that appearances can be deceiving in the matters of economic development. As we have said, if things look miraculous — too good to be true — they probably are. Japan’s miracle stock market was at 44,000 in 1990 and everyone, except a few, said the sky’s the limit. It is now 15 year later, and Japan’s stock market has been stuck around 13,000 or less for many years now. Trudy Rubin, and indeed the Chinese youth themselves, would be well served to be wary.

One Response to “China’s Roaring Twenties — its new middle class and the decline of farming”

  1. Helen Wang Says:

    It’s good to hear a cautious voice in the midst of this craziness of China.

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