Chinese leader Xi Jinping’s “end of the hedonistic lifestyle” to reshape the world’s second-largest economy is upending the lives of the well-paid upper middle class, with millions of Chinese feeling cheated.
Thomas Wu’s salary has been cut by 20 percent as part of a nationwide campaign to reduce salaries at state-owned financial firms. He worries about the layoffs and wonders in a conversation with Bloomberg how he will come up with 600,000 yuan ($84,500) to send his two children to private school.
Sectors such as finance, technology and real estate – the main drivers of China’s growth – are now being deprioritised. Instead, as the most powerful Communist Party leader since Mao Zedong, he is pouring resources into activities such as making electric cars and chips.
“Quality, not speed” is the new mantra
“Quality” not speed is the new development mantra.
The sense of unease among many of the country’s most educated workers risks deepening the gloom surrounding China’s $18 trillion economy.
The stock market is underperforming global markets, consumer spending is hovering near its weakest levels since the lockdown era and deflation is showing signs of rising.
In the long term an existential question arises: What happens to an economy when you shut down and discourage some of your best and brightest workers?
“This signals a dangerous underlying stress in the country’s workforce,” said Christopher Marquis, a professor at the University of Cambridge. “These individuals were key drivers of China’s economic miracle, but their disillusionment could lead to a wider social crisis as it challenges the Communist Party’s narrative of prosperity through hard work.”
“A necessary sacrifice”
Some argue that for Xi, the trouble caused is a necessary sacrifice.
The Communist Party has often been cautious about the financial sector, seeing it as something that enriches a few at the expense of the working class.
The US’s deterrent example
These perceptions were reinforced by the US example of the 2008 global financial crisis and industrial deforestation, which led to increased social unrest and the rise of Donald Trump.
Xi is determined to transform the world’s second-largest economy into a high-tech industrial powerhouse that can be self-sufficient.as the US tries to challenge its advanced technology and military tensions rise over Taiwan.
But the transition threatens to leave large parts of the economy and professional classes behind. The real estate sector represented almost a quarter of the economy at its peak, before a government crackdown on lending to contractors sent the overleveraged sector into freefall.
The financial sector alone employed almost 8 million people and offered some of the highest salaries.
Anger at display of wealth
Of course, not everyone is unhappy with the implementation of the measures. On social media, some have applauded the move to cap wages and tame the financial sector. The purchase last year of a $39 million Shanghai villa by a hedge fund manager – as the property market was in freefall – only added to the sense of outrage at the display of wealth.
Although China has made great progress in reducing poverty in recent decades, and the country’s growing wealth has not been shared equitably. Research by Stanford University’s Center for China Economy and Institutions found that the share of income earned by the richest 10 percent of the population jumped to 41 percent in 2015 from 27 percent in 1978. By contrast, the share earned by low-wage earners — a group that includes 536 million adults — fell to 15 percent.
“Nobody has ever shed a tear about finance workers and their salaries,” he told Bloomberg. George Magnus, researcher at the China Centre at the University of Oxford.|
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