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  • Writer's pictureRichard Murff

How To Wreck an Middle Class

Part Two

In college I wrote a paper arguing the reason why Russian communism collapsed and the Chinese version survived was essentially that the Beijing was smart enough not to believe its own bullshit. This no longer appears to be the case.

The Marxism that Beijing conveniently ignored for the last 30 years is back, once again requiring ideology to trump reality. One of the more cherished, and ignored, elements of communist ideology is the notion that everything belongs to “the people.” So every blue moon, the party is obliged to pretend that it knows the people are there.

Lord knows that America’s congress takes long vacations, but the big gathering of the People’s National Congress (PNC) in Beijing only happens once a year – and only for a week. The gathering of the PNC is held in conjunction with its advisory committee, just to make sure that “the people” don’t get any funny ideas. They call this the “two sessions.” Only one of them matters. Unlike America’s barking, obstructionist congress, the PNC is a rubber stamp affair more akin to the national conventions of US political parties. You already know the fix is in, but it is useful of see what the people in charge are thinking and how, precisely, they are likely to ruin your year.

There was the usual bell ringing, and China has had some notable successes: Last year it overtook Japan as the world’s largest automaker. This was largely due to the EV sector, where BYD briefly over took Tesla as the largest EV maker. And riding that high, prime minister Li Quang announced the ambitious growth target of that China’s growth of 5%. That’s a tall order for a strategy of doubling-down on an export-led economy in a global market that currently hates you.

Domestically, things are worse. Three thousand years of ham-handed central management has made the Chinese a fairly thrifty lot, and communism didn’t make them any flashier. Opening up the economy has – sort of. That single downward blip in property prices in 2008 enticed Chinese investors into the same trap as their American counterparts: Holding on to that peculiar notion that property prices will always go up. Now some 25% of Chinese savings are in the rapidly crumbling property sector. Beijing’s attempts to gently deflate property bubble has only hurt that section of the economy on which its growth depends: The people who thought that they were solidly middle class. Stocks make up a smaller chunk, but Chinese markets have lost $7trn in the last three years. None of which is going to help domestic consumption, but the medium-term problem is more social than economic.


Anyone with hint of wealth in China is neuvo-riche; in my grandfather’s day the entire place was an economic misfire and anything that we’d call old money was eaten up by the people’s revolution. While it is romantic (and very Marxist) to believe that revolution comes from the lower classes rising up against their greedy oppressors, in reality, that doesn’t happen very often. Revolutions almost exclusively come from what Eric Hoffer called the new poor: The staunchly middle class who have recently taken a humiliating slide down the socio-economic ladder. The French revolution, the rise of the Bolsheviks and the Nazi’s were all were fishing from the new poor for their powerbase to wreck the existing order. The Iranian Revolution succeeded only with the help the liberal middle class who thought they were establishing a democracy. The Arab Spring was a revolt of the college educated who thought that they’d have a job waiting for them at graduation.

The term “princelings” to describe those funneled into China’s ruling class is not meant as a term of reverence. It is an apt description of a people who inherit great wealth and power without ever understanding its source. And the history books are figuratively littered with their corpses. Like a lot of princelings, Xi is a narcissist, unlike most of them, he’s managed to roll it into a Cult-of-Personality issuing little books and a school course called Xi Jinping Thought that place ideology above economic and geopolitical reality. And like anyone whose world-view is no longer ham-strung by reality, he has a couple of blind-spots. The most glaring is that if China plans to achieve the innovation based and value-added economy it sees for itself, it needs an educated and driven middle class. And that cohort needs to be large, doing well, and have some hope for the future.

Granted, China already has a generation that came out of poverty and managed to do well out of the system that opened up in the 1980’s. In the West, this would be seen as a huge leap forward. Xi sees capitalism, and the middle class that it produced, as a threat to his cult as well as the power of party. He needs to push the uppity neuvo-riche back down the ladder.

If history serves as an example, they won’t go quietly.


Part Two: How to Wreck a Middle Class


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