China’s Economic Myth No. 2 – A Super-Sized Market?

The first China International Consumer Goods Expo (CIIE) was held in Hainan from May 7 to 10, with the Communist Party saying that China’s “mega-consumer market is an opportunity shared by the whole world. Before that, the CCP also held the China International Import Expo (CIIE) every year since 2018, saying it was “a major initiative to firmly support trade liberalization and economic globalization and actively open its market to the world. Is this really the case?

Proponents can give many reasons: from the basic national situation, China has a population of more than 1.4 billion, roughly 400 million middle-income people and a GDP per capita of more than $10,000; from the data of total final consumption, China’s annual total retail sales of consumer goods grew from 33.2 trillion yuan (RMB) to 41.2 trillion from 2016 to 2019, which is comparable to the world’s largest consumer country, the United States ( In 2018, China’s retail market was 95% of that of the United States and will become the world’s largest domestic market in “not too long”; on a case-by-case basis, China has become the largest market for some of the world’s brands, such as L’Oréal North Asia President and CEO of China Fabrice Fabre, who said that “by 2020 For example, L’Oréal North Asia President and CEO of China, Fabrice Fabre, said that “in 2020, for the first time, the Chinese market will become the largest market for French beauty”, and so on.

On January 8, 2020, Wang Shouwen, Vice Minister of Commerce and Deputy Representative for International Trade Negotiations, confidently stated that China’s consumer market had huge potential and would become the world’s largest domestic market “in a not too long time”; however, when the epidemic broke out, although the Chinese Communist Party claimed to be Although the Chinese Communist Party claimed to be “the first to emerge from the epidemic and lead the economic recovery,” and although the United States was hit hard, China still failed to surpass the United States in 2020, with total retail sales of consumer goods falling 3.9% (3,919.81 billion yuan) from the previous year. Some are again pinning their hopes of overtaking on 2021.

However, even if China overtakes the U.S. as the world’s top retailer this year, its capacity to accommodate is still far from ideal. Why is that? This article makes two brief points.

One, China’s consumption rate is far below normal

China’s final consumption rate (final consumption as a share of GDP) is close to 55% in 2020, compared with about 80% in the average developed country. Whether compared to high-level developed countries, countries with the same level of GDP per capita development, or neighboring countries with similar cultural geography, China’s final consumption rate is very low and about 25 percentage points lower than that of countries with the same GDP per capita. If we calculate only the residential consumption rate (by deducting the government consumption component from final consumption), the difference between China’s consumption level and that of other countries decreases to about 20 percentage points, but again, it is the lowest among countries at the same level and geographically neighboring countries. In other words, China’s consumption rate is low no matter how you compare it.

Why is this so? Hasn’t China’s “per capita GNI exceeded $10,000, reaching the world’s upper middle-income level” (July 2020, NBS data)? Why is China’s consumption level far lower than that of other countries, even at the same level of development? Where have the Chinese people’s incomes gone? The article “What is the level of China’s consumption in the world?” published by the mainland media points out two things. The article points out two things. First, the overall trend of the resident sector’s share in the overall national income, both in the initial distribution and in the redistribution, is decreasing, and the overall income distribution is tilted towards the government; that is, compared to the past, the residents get less in the distribution of the same 10,000 yuan of national income, which affects consumption. Second, the income gap in China is substantially higher than in other countries, and at the same level of income, the greater the income gap, the lower the consumption rate will be (because when income reaches a certain level, the share of consumption in income will gradually decrease, that is, the marginal propensity to consume decreases, and its consumption rate will become lower).

Both of these reasons point to the CCP: the CCP (through the government) has grabbed more and more wealth while creating a disparity between rich and poor, making Chinese people’s consumption much lower than normal.

Second, the illusory 400 million middle-class (middle-income people) spending power

Although, on May 28, 2020, Li Keqiang said at a press conference that China has “600 million people with low and middle incomes and below, and their average monthly income is only about 1,000 yuan”; although, the research group of the Income Distribution Research Institute of Beijing Normal University, which randomly selected a representative sample of 70,000 people in a stratified manner, concluded that the total population with a monthly income of 2,000 yuan or less in China is less than normal. Although a research group from the Institute of Income Distribution, Beijing Normal University, stratified and randomly selected a representative sample of 70,000 people and concluded that the total population with a monthly income of less than 2,000 yuan was 963 million, the “theory of China’s 400 million middle class” still has great influence.

In a forum at the first China International Consumer Goods Fair, Justin Lin, the “Chinese economic miracle” advocate, even suggested that “by 2035, China’s middle-income population could reach 800 million, and such a huge market is an opportunity for China, and for all countries in the world. ” He said that the rise of new consumer groups coupled with the upgrading of the needs of the original consumers, for the world, China is a fertile ground worth developing deep plowing.

In fact, “China’s 400 million middle class theory” is very controversial in academic circles. For example, mainland sociologists such as Lu Xueyi estimated in 1999 that the middle class accounted for 14.1 percent of the population, a figure that would grow to 22-23 percent by 2008, “a smaller middle class squeezed between a very small upper class and a large lower class.” Andrew J. Nathan, a professor at Columbia University, gave the Seymour Martin Lipset Lecture on Democracy in the World in October 2015. In his famous lecture at the Seymour Martin Lipset Lecture on Democracy in the World in October 2015, Nathan argued that one difference between the Chinese middle class and Lipset’s definition of the middle class is that the Chinese middle class is a much smaller proportion of the population.

Also according to a recent study by Chinese economists Li Shi and Yang Xiu Na, if the upper and lower limits for defining the middle-income group are based on 60%-200% of the median income of 28 EU countries (at 2018 prices, the upper and lower limits for daily income are $155 and $516, respectively, and the corresponding upper and lower limits for annual income are $56,575 and $188,340, respectively), the share of the middle-income group in China is only 24.7% (344 million in 2018). In contrast, the proportion of middle-income earners in Western Europe’s Britain, Germany and France, Northern Europe’s Norway, and North America’s Canada is around 70%; while the proportion of middle-income earners in the United States is slightly lower at 55.9%, high-income earners account for 30.5%; and the proportion of middle-income earners in Asia’s South Korea and Japan is also above 60%, and Russia reaches 49.3%. The study concludes that the reason for this difference comes from two sources: first, there is still a large gap between the per capita income level of Chinese residents and that of developed countries, and second, the income gap of Chinese residents is larger than that of developed European countries.

Even though there are 344 million middle-income people in China, the study also points out that, first, by source of income, almost 60% of them are dominated by wage income (the share of wage income >= 50%); second, there are a large number of middle-income people distributed around the middle-income (lower) standard, who belong to the bottom middle-income group and are also the “vulnerable They belong to the bottom middle-income group and are also the “vulnerable” middle-income group. This brings a hidden danger: their income may be severely affected by job changes, unemployment, family changes, natural disasters and other uncertainties, and even fall to the lower income group. Therefore, the consumption capacity of this middle-income group must not be overestimated, especially considering that the high cost of living, such as education, health care and retirement, has largely eroded their living standards and suppressed their consumption demand.

A study that can be cross-referenced with the above findings is a study by Li Qiang, a professor at Tsinghua University, titled “The Middle Class Transitional Layer and the Middle Class Marginal Layer” (published in the February 2017 issue of Jiangsu Social Science). The study used the International Socio-Economic Occupational Status Index (ISEI) method, using a 1% sample of the Sixth National Congress “Long Form” data, for the population aged 16-64 years old The total sample size is 683,291 people with an occupation, and the measurement shows that the Chinese middle class accounts for 19.12% of the sample, but 73% of the sample is in a marginal state close to the lower class.


The actual size of the Chinese market is not as large as the “Chinese mega-market theory” would have us believe. In addition to the fact that China’s consumption rate is far below normal and the illusory 400 million middle class (middle-income group) has the ability to consume, there is also the fact that China has set up many barriers to foreign business entry into the Chinese market, such as import controls, forced export ratios, forced technology transfers, etc., which make the Chinese market much less attractive than it really is. In addition, some of the CCP’s thundering political tactics, such as the recent campaign to incite people to boycott foreign brands like H&M, have done harm to the Chinese market that should not be taken lightly.