Despite there is no single measure that can encompass everything, a large amount of evidence indicates that the Chinese Communist Party’s economy is heading towards decline, attracting attention worldwide. China’s once optimistic and confident middle class is losing its original status, and even for many middle-class individuals, they are falling back into poverty.
This poses a serious problem for the CCP. The impression is that the national leadership has failed to fulfill the implicit contract with the Chinese people, where the people would quietly tolerate CCP rule in exchange for social prosperity.
So far, the public has only taken passive responses by cutting household expenses and striving to rebuild wealth in adversity. If the situation escalates, no one knows how the Chinese people will react. After all, during the 2009 economic recession, there were quite serious violent incidents that led to social unrest.
Looking at the bigger picture, the main cause of the problem is the ongoing real estate crisis in China. Since the residential real estate development giant Evergrande announced its inability to fulfill its financial obligations in 2021, this crisis has been plaguing China’s economy and finance. The financial disruption caused by Evergrande’s bankruptcy, as well as various companies facing financial crises in the following years, has slowed down the pace of housing construction and sales.
For the middle class, more importantly, these issues have significantly depressed the value of existing housing, which is the main source of wealth for most Chinese people, especially middle-class families. For example, in December last year, the average price of existing homes in 70 major Chinese cities dropped by 6.3% compared to the previous year, the largest decline since the data series was first released in 2011.
However, the most telling evidence of the problem may come from a recent report by the Ministry of Finance on national income tax revenue. The report shows that personal income tax revenue in January and February (the most recent period with available data) was approximately 362.2 billion yuan (about 45.1 billion US dollars), a 16% decrease from 2023. More revealing than this figure is the Ministry of Finance’s explanation for the income decline. The report states that the decrease in personal income tax revenue reflects a shift of household income below the 100,000 yuan threshold, as individuals with annual incomes below 100,000 yuan are not required to pay personal income tax. Since 100,000 yuan is also the widely recognized threshold for being considered middle class in China, the tax revenue gap also reflects how many people have fallen from this enviable status.
Data on starting salaries collected by Bloomberg News, based in New York, also confirms this poignant phenomenon for ordinary Chinese people. In the fourth quarter of 2023, with available data, starting salaries decreased by 1.3%. This marked the third consecutive quarter of decline. Bonus data saw an even larger decrease, with an average drop of about 17.5% compared to the same period last year. Looking at the industry comparisons, bonuses in the internet and telecommunications sectors decreased significantly by 27%; the financial industry experienced an even larger decline of 35%.
Given this, a sharp decline in luxury goods sales is not surprising. Italian luxury fashion brand Gucci reported a 20% drop in sales in mainland China this quarter compared to the previous year. Swiss watch exports to China decreased by 25% compared to the same period last year. Upscale restaurants in China also saw a similar decline, while the traffic in low-end restaurants saw some recovery. Another compelling case is the sharp increase in the inventory of second-hand pianos, causing significant downward pressure on prices. In general, having a piano at home is a symbol of middle-class status; the surplus inventory indicates that many real estate properties have abandoned this status symbol.
These various phenomena indicate that China’s economic prospects will continue to be bleak, no longer exuding its past glory. For the middle class, all they can do is stay at home, reduce household expenses, and work hard to rebuild wealth. As for CCP leader Xi Jinping and his cadre of top officials in Zhongnanhai, this continuing gloomy economic outlook will at least make them restless and fearful, as they understand deeply that once they fail to bring economic prosperity to the Chinese people, their regime will inevitably face a crisis of trust.