Items Tagged With Gregor Kaelin

Came across a really interesting article basically telling me that there's really no such thing as a new emerging middle class in China. Say what? I'm one of those that has always bought into the assumption of a growing middle class in China. Afterall, it was the basis for my existence as head of marketing for China's largest TV shopping company during the 5 years I was working in Shanghai. My job depended on the existence of a middle class in China and we had accumulated over 700,000+ of them in our customer database in a matter of years.

As the article mentions:

The assumption of middle- class behaviour, especially in patterns of consumption, "is to be expected as a function of globalised commercialism," with Gucci, Loewe and Louis Vuitton brands targeted at the wealthy consumer in Shanghai and Beijing, as well as in Milan and New York.

But Goodman insists China's "new rich categories of entrepreneurs are less the new middle class than a future central part of the ruling class". They are quite unlike the 19th-century European bourgeoisie in the extent to which they have emerged from and retain close relationships with the established political system.

Once again, I've come across a very highly academic China theory that I'm struggling to understand in real life terms. Reminds me of being back on a panel of speakers a few months ago at a business ethics conference in Beijing. Everyone's theory made sense...in theory. When it came my turn to address the audience, it was a bit intimidating because I had no theory to offer. So I gave an opinion based on experience instead. Seemed to work just fine in getting my points across and understood. I try to do the same for this blog. See, I'm a simple person. Concepts and theories are lost on me unless I can grasp them through real life examples.

So with that, one of the first things I did was turn to the trusted opinions of others by sharing the article with my valuable network of China business friends on Facebook. The following are some interesting insights:

Gregor Kaelin, Investment Advisor and Executive Director of Swiss Asset Management International comments:

I agree with the author but I also have to disagree. I agree that the entrepreneurs he is talking about are not the future middle class but will be the upper class. They are only where they are because they have very good connections to government bodies and people. Therefore one cannot expect these people to have any interest atall for change in the system as they are the prime profiteers of it. Nevertheless there is a significant middle class on the way which has gone to university and has well-paid jobs in the private sector. Many on them will never become rich but will form the well-off middle class of future China. They will have a car or two, maybe an apartment, will go on holiday once or twice a year but will hardly ever own millions and have no political influence whatsoever, probably no political interests either. There will, however be a very large portion of the population who will not profit from economic development and will remain very poor.

 

Jianjun Zhang, Founder and Owner of Yeasir.com follows up with:

Hi Gregor, I agree with what you have said above. And would like to add my two cents: those entrepreneurs who run state-owned businesses are assigned the position by the party and the government. They don't need to have capital or even talent but they must be loyal to the party. Actually this is a legacy system. The real private sector entrepreneurs are the real hope in the future.

 

Peter He, Global Digital Strategy for MTV Networks says:

i never really liked analogies about china with a lens. middle glass was created by western economists, to measure purchasing power, to project future growth, to certain extent. so sizing china's economic growth pattern with such lens will inevitably fall in to a trap. because even in the most developed economy, middle class is disappearing. how do you explain this? in other words, there is no such a thing as middle class. china's economy and growth has to tie in with government. he is right that china's model is somewhat closer to earlier japan's. and there are reasons for that.

wealth accumulation is a process. given the size of china, 30-years is not enough. it takes a few generations. but china is getting there, with its own style and pace.

 

Fond Tuinstra, Founder of ChinaBiz Speakers

The concept of the "middle class" is a rather complicated one, with historical, sociological and economic dimensions. In relation to China the unproven assumption is that we all more or less agree on what the "middle class" is, wrongly I believe, adding greatly to the murky discussion on the position of that middle class. At least Goodman defines his look at the middle class and by doing that you see it is almost impossible to transfer that concept to China.
From a sociological perspective, being middle class has become a rather successful concept in the US, where even the poor and the rich believe they are middle class. Europe has been copying that, be it not always very wholehearted, to a certain degree.
Most people I know in China do not aspire to be middle class, unless they have been living in the US for a long while. Chinese want to be rich, very rich, even though that is not achievable for most of them. Being middle class refers to a US way of thinking

Janet Carmosky, CEO, The China Business Network adds her 2 cents:

Having read the write-up in The Australian, I'm intrigued enough to read the book.

I'm not sure Goodman's saying that Chinese don't shop, or that the numbers of Chinese who do shop (and the means by which they achieved the power to shop) aren't growing and aren't based on an increasingly broad economic and social structure.

Pehaps his argument is that the Chinese who shop the most are more likely to 1. have benefited from government relations, and 2. aspire to political power than westerners generally assume.
Americans tend to believe in a simple model: that any nation reaching towards greater productivity will in the process become more "like us". The dynamic between culture, society and economy is more complex than that, and if anything, culture drives economy, not the other way around.

 

Paul Denlinger of The China Vortex:

Many of the early entrepreneurs made their money through government connections; when they saw an opportunity to make money by starting their own company, they made the move to the private sector where they could keep all the profits for themselves. Others made their money essentially by "asset-stripping" or stealing state-owned assets.

Those early days of asset-stripping are over; now there is a new generation who have their own ideas and see their own opportunities. They do not rely on any state connections.

This is the next wave of Chinese entrepreneurialism and capitalism. For commodity services products (oil, coal, electricity, transport, etc.) the government and party will continue to play a dominant role. As for the rest, it will be mostly private sector. This private sector will employ the members of the rising middle class.

So I would say that that the author's views are out of date; there is a new and rising middle class which does not depend on the government now.

 

Me personally? I still don't think I understand the whole argument the author is making and still have a lot of questions. For starters, I would really like to understand David Goodman's definition of middle class first. Maybe then I would have a better understanding of where he's coming from. Maybe I'm just missing something. Maybe I need to read the book (maybe that's the point of the confusing article. aha. kaching)

Just based on the article alone, it sounds to me like Goodman may be referring more to the "nuevo riche" of China - not the middle class. But I'm going by the assumption from the article's headline:

"Myth Of China's New Middle Class"

Yes, I'll agree that the new rich category of entrepreneurs are less the new middle class than the future ruling class. Isn't that stating the obvious? Who out there is arguing otherwise? There's nothing to argue in that argument. What's new here? I don't get it. What of the educated white collar Chinese who have a monthly household income of RMB 5,000 - RMB 15,000 range and pack the Ikea, Carrefoure, Parkson and XuJiaHui stores on the weekends? I spent years marketing to them. I studied them. I sold to them. They never struck me as being in a transition period towards becoming China's next political elite. They are educated, climbing the corporate and social ladder, accepting that they may never become millionaires and content with not being involved in politics. If they do not define the middle class as we westerners know them to be, then what are they? Hmmm...as mentioned, I think I'm missing something here. Alas, I believe a few clicks at Amazon.com will shed some light on this for me.

While I collect a few more thoughts on this...couldn't help but think of a few lines from one of my favorite movies:

Ever see that movie Sixth Sense? There's a famous part of the movie that goes something like this:

"I see dead people."
"In your dreams?"
*Cole shakes his head no*
"While you're awake?"
*Cole nods*
"Dead people like, in graves? In coffins?"
"Walking around like regular people. They don't see each other. They only see what they want to see. They don't know they're dead."
"How often do you see them?"
"All the time."

Well, if someone out there is trying to tell me there is no such thing as a middle class in China, my version of Sixth Sense as it would apply to the article I just read would go something like this:

"I see middle class people"
"In your dreams?"
*Christine shakes her head no*
"While you're awake?"
*Christine nods*
"Middle class people like, in department stores, restaurants and office buildings in China spending their disposable income and not caring about whether or not they become China's next political leaders?"
"How often do you see them?"
"All the time."