We often have a stereotypical view of China as a third-world country where everyone is working in sweatshops, making happy meal toys for a few cents an hour; and working 12 hour days in 100 degree heat. While that may be the case in some instances, overall China is rapidly becoming a developed, first world country, with a large and rapidly growing middle class. In this diary I will attempt to show just how developed China is becoming using widely available statistical measures.
In what follows I will give statistics in dollars. I will often then give dollar amounts in terms of purchasing-power-parity. I use the multiplier of
4.24; in general, goods are cheaper to buy in China, so this means that for a random good, say a radio, it will cost 4.24 times as much in the US as it does in China, at current exchange rates.
Size of Economy
In 2005, the GDP of the US was $12.3 trillion. In US dollars, China's GDP was $2.2 trillion, or the fourth largest economy in the world. However, adjusting for purchasing-power-parity, the GDP of China was $9.4 trillion, or the second largest in the world. In terms of PPP GDP (the standard used to compare GDPs of different countries):
- European Union: $12.4 trillion (1% larger than US)
- United States: $12.3 trillion
- China: $9.4 trillion (23% smaller than US)
Another way of looking at it is to think about each economy as a fraction of global GDP. Global PPP GDP is $61.1 trillion, so:
- EU: 20% of global GDP
- US: 20% of global GDP
- China: 15% of global GDP
- Japan, India: 6% of global GDP each.
So if you combine the PPP GDP of China and India, the total is larger than the PPP GDP of the US or the EU.
Also, the GDP of China is growing at about 10% annually. If this rate continues, and if the US GDP grows at a rate of about 5% annually, China will have a larger economy than the US in PPP terms in 2011, or in five years.
Size of Middle Class
China has a large and rapidly growing middle class. From PBS' Nightly Business Report:
The Chinese Academy of Social Sciences released the results of a three-year study where those referred to as middle class would be the managers, professionals, skilled technicians and service workers who earn between $2,500 to $10,000 a year. A study by the Chinese Academy of Social Sciences (CASS) found the middle class to be 19% of the population in 2003, up from 15% at the end of 1999. Using CASS criteria, in 2003, the middle class included 247 million people out of a population of 1.3 billion. (More recent statistics are not yet available.)
Morgan Stanley-which projects 300 million, or 40% of the Chinese population to be in the middle class by 2020-sees this as offering great business prospects. It now projects Chinese retail sales for 2005 at $625 billion. Overall retail sales in China ten years ago were $190 billion.
Now that doesn't sound like a lot of money, $2,500-$10,000 dollars a year in income. But at PPP, that's $10,600-$42,400. For comparison, in 2003, the median (50th percentile) personal income in the United States was
$22,700, or squarely in the middle of that range [value updated].
As to the size of the middle class, 247 million middle class citizens in China is a huge number. That is 83% of the entire population of the US. Yet the middle class in the US is roughly 60% of our population, so by this measure China has a middle class of larger size than the US.
Wages
China's workers are employed in sweatshops for pennies an hour, right? While, not really:
For years, Yongjin Group has earned a decent profit selling lamps and furniture to the likes of Wal-Mart (WMT), Home Depot (HD), Target (TGT), and Pottery Barn. But lately the company has seen its margins shrink to 5% -- half what Yongjin made when it opened its factory in the steamy southern Chinese city of Dongguan 14 years ago. Why? Labor shortages are forcing the company to boost wages. Last year salaries surged 40%, to an average of $160 a month, and Yongjin still can't find enough workers. "This business needs a lot of labor," says President Sam Lin. "This is a very tough challenge."
Some 1,500 miles northeast, in the city of Suzhou, Emerson Climate Technologies Co. is facing similar woes. The maker of air conditioner compressors has seen turnover for some jobs hit 20% annually, and Emerson General Manager David Warth says it's all he can do to keep his 800 employees from jumping ship to Samsung, Siemens (SI), Nokia (NOK), and other multinationals that are now operating in the tech manufacturing hub. "It has gotten to the point that we are just swapping folks and raising salaries," says Warth.
Wait a minute. Doesn't China have an inexhaustible supply of cheap labor? Not any longer. From the textile and toy factories of the south to the corporate headquarters and research labs in Beijing and Shanghai, the No. 1 challenge today is finding and keeping good workers. Turnover in some low-tech industries approaches 50%, according to the Institute of Contemporary Observation, a Shenzhen labor research group. Guangdong Province says it has 2.5 million jobs that remain unfilled, while Jiangsu, Zhejiang, and Shandong provinces say they, too, face shortages of qualified workers. "Before, people talked about China's unlimited labor supply," says Zhang Juwei, deputy director of the Institute of Population & Labor Economics at the Chinese Academy of Social Sciences in Beijing. "We should revise that: China is facing a limited supply of labor."
So China's workers producing goods for Walmart, at least in this instance, are making $1,920 per year, or $8,140 per year at PPP. Remember, the median personal income in the US is $22,700, so these workers are making more than one-third of the median US income. And also, their wages are growing very rapidly, at a rate of 40% annually last year.
Other Statistics
Look at cell phone usage. If you're working in a sweatshop for pennies a day, you aren't going to be able to afford a cell phone. However, the top three markets for cell phones are:
- China: 335 million (73% more than US)
- EU: 315 million (62% more than US)
- US: 194 million
So apparently quite a few people have cell phones in China. When I was in China last time, everywhere I went, including national parks, I had signal. Try to get signal on your cell phone in Yosemite, it's not going to happen. China has a better cell phone network than we do.
Look at steel production. China produces one-third of all of the steel produced in the world. That is more than three times as much as is produced in the US.
Look at oil consumption. China is second only to the US in terms of oil consumption. However, we still have a big lead here, we still consume more than three times as much as they.
Shiny, Glittery, High-Tech Things
Look at the `Fifteen Best Skylines in the World' posted by Markos on an open thread a while back:
- Hong Kong, China
- Chicago, US
- Shanghai, China
- New York, US
- Tokyo, Japan
- Singapore
- Toronto, Canada
- Kuala Lumpur, Malaysia
- Shenzhen, China
- Seoul, South Korea
In other words,
three of the top ten are in China, and seven of the top ten are in Asia. Only two of the top ten are in the US.
These are not empty skyscrapers, and they're not showcase cities on the coasts. For instance, consider Chongqing and Chengdu, cities deep in the interior of China, and the ninth and eleventh largest urban areas in China. The ninth and eleventh largest cities in the US are Detroit and Indianapolis. Per Emporis, the number of high-rise buildings in these cities are:
Clearly the level of development is comparable.
Look at the Three Gorges Dam, the largest in the world, a $25 billion project that will produce 3.4% of China's electricity needs. Or look at the new 110 mile long maglev train being planned from Shanghai to Hangzhou. Or the existing maglev train in Shanghai from the airport to the city-center.
If you fly between the cities of China on domestic Chinese airlines, you will fly in Airbus, Boeing or MD aircraft, not third-world propellor planes.
Summary and Conclusion
China's PPP GDP will likely surpass our own in five years. China already has a middle class that is comparable to our own, and their wages are rapidly growing. China has more cell phones in use than America does. China's skylines match our own.
So while the majority of people in China are still poor, peasant farmers, China has a significant and rapidly-growing middle class. In the cities along the coast and in the interior, China can often appear to be a first-world country.
Update
Two great links for more information: this paper provides a detailed picture of China's income. In particular, look at Figures 1-5 at the very end of the document, they compare the income distribution of the US and China, show the changing Chinese income distribution over the past few decades, and compare rural and urban incomes in China.
Also, have a look at this article from the NYT Magazine. It is a superb article on the economy of China. They clarify a few of my figures above, for instance they state:
Factory wages in the country's booming east coast cities can be $120 to $160 a month and half that inland, according to Merrill Weingrod of China Strategies, an affiliate of Kurt Salmon Associates, a consulting firm.
(...)
The plots allotted to farm families are on average 1.2 acres but can be as small as an eighth of acre; in hundreds of millions of cases these farms fail to generate enough money for a family. Average city incomes, according to the Chinese government, are $1,000 a year, which is three times what they are in the countryside.
(...)
Though China claims urban per-capita income is $1,000, ''the government numbers on incomes don't tell nearly the whole story on the consumer class, especially not in the eastern cities,'' says Merrill Weingrod of China Strategies. Weingrod, working with Linsun Cheng of the University of Massachusetts at Dartmouth, surveyed incomes in Shanghai and several other cities in industrial centers. ''People tend to have two and three jobs, with many taking in short-term assignments here and there,'' he says. ''Real income in Shanghai, for instance, is close to $2,500 per capita, $5,000 per household.'' The Chinese can, on average, buy nearly five times in goods and services per dollar what an American can with the same dollar in the U.S. ''If you multiply income against China's purchasing power parity,'' Weingrod says, ''Chinese urban incomes approach the buying power of Americans making $12,500 a year. For working couples, that's the equal of $25,000. Do the math, and you can understand why Shanghai looks as prosperous as it does and why it seems like everyone is out shopping all the time.''
According to Weingrod's and Cheng's research, China now has 100 million people who are comfortably middle class. They buy (in reduced measure) what the American middle class buys. The allure of China's market is obvious: the huge volumes of potential sales mean even products with the most modest of margins can earn lots of money.
(...)
The government is pouring resources into creating the world's largest army of industrialists. China has 17 million university and advanced vocational students (up more than threefold in five years), the majority of whom are in science and engineering. China will produce 325,000 engineers this year. That's five times as many as in the U.S., where the number of engineering graduates has been declining since the early 1980's.
(...)
Last year, China spent $60 billion on research and development. The only countries that spent more were the U.S and Japan, which spent $282 billion and $104 billion respectively.
I highly recommend reading the NYT Magazine article, it is really excellent.
Also, while I believe my diary is correct, it is important to remember that the majority of Chinese citizens still live in the countryside in very difficult conditions. China's per capita PPP GDP is $7,200. That is 84th in the world. So while China is rapidly developing, they still have a very long ways to go.