Polarization and the middle class in China: A non-parametric evaluation using CHNS and CHIP data

Abstract

Since the 1990s, and until the beginning of the second decade of the XXIth century, record economic growth in the PRC has been inclusive (as virtually all social groups experienced sizeable well-being improvements in an absolute terms). Yet, it has been accompanied by an increase in both income inequalities and polarization.To jointly explore these phenomena, we apply the Relative Distribution tool on different datasets. This technique allows to statistically isolate and analyze separately the pure growth and the pure distributional components, or effects, of the overall societal income evolution process.Our main result shows a hollowing out of the mid-range deciles - i..e, the (national) middle class, understood by definition as the central ones of a country's income distribution function - with a corresponding fattening of the highest and lowest ones. Trends in "pure distribution" (i.e., the shape effect) show the emergence of a typical polarization profile.This key finding does not contradict the stylized fact that such a (negative) "pure distributional" trend has been “countered” by impressive GDP growth. The latter has led an ever-increasing and now ample share of China's population to join the ranks of the global middle class - a popular declination of the middle class concept with its own merits, yet totally distinct to the national one mentioned above.11On the growing number of Chinese households joining the global middle class see, among others, Li He 2006, Cheng Li (ed.) 2010, Zhang Yuan, Guanghua Wan, and NinyKhor 2011, Tsang 2014, Rocca 2017, Sicular , Gustafsson and Xiuna Yang 2017.We need to take both growth effects and shape effects over time into consideration for a proper political economic assessment of Chinese economic performance. As growth slows, unless countervailing policies are undertaken, polarization might reveal itself more sharply, increasing the risk of social conflicts. To avoid such an unwelcome outcome, focused anti-polarization actions are warranted, along with policies aiming at achieving a more egalitarian growth pattern.