Middle Class Wealth: China vs. USA

David Rosnick and Dean Baker have just published The Wealth of Households: An Analysis of the 2016 Survey of Consumer Finance. As with everything from their thinktank, it’s readable, balanced and somewhat alarming: it suggests that America’s 125 million households are poorer than China’s 252 million urban households.

Yes, those are urban Chinese households, but you get the point. People unconsciously worship wealth and beauty and want to be like wealthy, beautiful people–or at least look like them sometimes. So when people start realizing that, hey! We used to be ten times richer than them and suddenly the Chinese are richer than us? What’s going on?

How long before people start asking their governments, “Why can’t you make us as at least as rich as the Chinese?” Then–and only then–we’ll start seeing social and financial reforms.

Anyway, here are David and Dean’s findings [my emphasis], followed by some comparable data on urban Chinese families.

  1. The average net wealth of near-retirees.. households headed by someone between the ages of 55 and 64–was $195,500 in 2016, up slightly from $181,000 in 1989 but well below the 2004 peak of $329,300. (All numbers are in 2016 dollars.) The homeowners in the middle quintile among this age cohort had a 58.5 percent equity stake in their homes in 2016, up from 54.6 percent in 2013, but far below their 81.0 percent stake in 1989. Their non-housing wealth in 2016 averaged $99,200, down from a peak of $165,700 in 2004.
  2. The second-from-the-bottom quintile in this age group, near-retirees, on average had a 45.6 percent equity stake in their home. Their non-housing wealth averaged just $25,200.
  3. The equity stake for the middle quintile of older prime-age workers (ages 45-54) averaged 43.8 percent in 2016, down from 72.2 percent in 1989. Their non-housing wealth averaged $62,700.US Average Net Worth CEPR 2017
  4. The equity stake for the second quintile of older prime age workers averaged 26.7 percent. This compares with an equity stake of 63.9 percent in 1989. Non-housing wealth for the second quintile averaged $18,000.
  5. The net wealth for the middle quintile of mid-career workers (ages 35 to 44) averaged $61,100 in 2016. This is down from $107,100 in 1989. The average housing equity for this group was $27,500. That compares to $65,500 in 1989.
  6. The average net wealth among the middle quintile of students and young workers (ages 18 to 34) was $12,200 in 2016. This is down from a peak of $20,200 in 1995. The bottom quintile among this age group had net debt averaging $88,700, most of which was student loan debt.
  7. The average net wealth among the middle quintile of recent retirees was $228,300. This is up from $147,500 in 1989, but 18 percent below the peak of $279,200 in 2007.

Now let’s see how total wealth, urban and rural, is distributed in the USA, France and China:

Wealth Distribution China US France

This does not fit very well with home ownership patterns in the USA and China–which calls for further investigation:

China Home_Ownership_by_income

In the meantime, here are some Chinese figures that’ll make you thoughtful:

The minimum wage continues doubling every decade and, though Western economists warn that high employment costs discourage hiring, the job market remains tight and complaints of labor shortages are widespread. According to The New York Times, “Waves of migrant workers from the countryside filled China’s factories for the last three decades and helped make the nation the world’s largest manufacturer. But many companies now find themselves struggling to hire enough workers. And, for the scarce workers they do find, pay has more than quintupled in the last decade”.

After industrial workers’ wages rose 250 percent between 2008-2017, The Wall Street Journal observed, “In 2012 alone, the average wage rose by 14 percent. Western corporations such as Crystal Group, which produces clothes for Abercrombie & Fitch and Gap, have pulled out because of ‘rising labor costs’. Tightening regulations and rising wages and benefits, , when adjusted for productivity, have made Chinese workers only four percent cheaper than their American cousins and made income mobility a reality for almost everyone, the inverse of Americans’ experience where, says Stanford’s Raj Chetty, “Rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. Absolute income mobility has fallen across the entire income distribution, with the largest declines for families in the middle class”.

My Chinese friend’s niece told us she contributes forty percent of her income–three times America’s rate and four times Europe’s–into five social security funds: Pension, Medical, Unemployment, Maternity and Occupational Injury–and her employer contributes nearly twice as much again (which explains why, by 2017, Chinese cost their employers as much as their American counterparts). To support the national goal of total home ownership, her employer also contributes to the tax-exempt Compulsory Housing Fund and, three years ago, she used her accrued balance as a deposit on a condo and, as a fund member, received a discounted mortgage rate. Though regional variations make such programs difficult to compare, in Shenzhen, where she works, employees contribute nothing to the housing fund while employers contribute thirteen percent of salary while in Dalian her sister-in-law contributes fifteen percent and her employer, a State-Owned Enterprise, SOE, contributes a staggering twenty-five percent.

Life expectancy, now seventy-seven years, will equal America’s in 2020 and the quality of Chinese urban life has begun pulling ahead. Shanghai’s high-speed trains, subways, airports, wharfs, docks commercial facilities, life expectancy, infant mortality and safety all outperform New York by a considerable margin, as the New York Times’ Thomas Friedman said, “Just compare arriving at La Guardia’s dumpy terminal in New York City and driving through the crumbling infrastructure into Manhattan with arriving at Shanghai’s sleek airport and taking the 220-mile-per-hour magnetic levitation train, which uses electromagnetic propulsion instead of steel wheels and tracks, to get to town in a blink. Then ask yourself: Who is living in the third world country?”.

In

In The China Wave, economist Weiwei Zhan compares China’s urban life to Switzerland’s: “Though Swiss nominal GDP is five times higher than Shanghai’s, its food and many daily expenses are five to ten times more expensive and Swiss home ownership is only half of Shanghai’s. Hence the wealth–and even the living standard–of many Shanghai residents is higher than the average Swiss, while urban housing is better than Japan’s or Hong Kong’s. Shanghai’s life expectancy is higher than New York’s, its level of education and education system are the highest in the world and its overall scientific and technological power suggests a healthy economic future”.

My personal experience supports Zhang’s claims. On a 2017 visit to coastal Shenzhen (pop. twelve million) I was charmed by the leafy beauty of its boulevards and struck by the pervasive prosperity and absence of poverty. We used Didi, China’s version of Uber, to get around and were astonished to find that almost all of our drivers own properties and half own more than one, giving them a net worth–which they willingly disclosed–of $100,000-$200,000. They all complained of overwork and being at the bottom of Shenzhen society which, in their eyes, is composed entirely of millionaires. Our drivers’ net worth turns out to be close to the 2017 Chinese urban household median of $130,000.

Incidentally, rural Chinese aren’t standing still.  The average Chinese farm is 1.2 acres (compared to Australia’s 385 acres) and all land belongs to the state. The 2007 Property Law established a uniform land use registration system so farmers could, theoretically, rent out their land-use rights and even pledge them as collateral for loans. Sihong, a rural county of a million people, took advantage of the change and encouraged farmers to rent out their land as long as it continued to be used for agriculture. Bloomberg tells what happened to Sun Zeshun, who leased his land to an agribusiness corporation and became a roofing contractor. Including the two thousand dollars he now earns in rent, Sun’s monthly income doubled and, in 2015, he bought a new house and an SUV. “Life is much better than before. I have more freedom and my income is less affected by weather and other uncertainties”. This year, Beijing rolled out Sihong’s reform nationwide.

Calculating the 2017 shadow value of rural land divided by registered rural population equals US$23,000 per capita, 13 times rural disposable income: more than $20 trillion of total wealth.  Former IMF economist Liang Hong says, “China’s unlocking the underlying wealth in these land assets. We’re looking at 300-400 million people–the population of the European Union–with more purchasing power”. 

Written by Godfree
Visiting China and studying it since 1967. Interested in its culture, politics, education and economy.