The New Rich in China

Future rulers, present lives

David Goodman

• Publisher: Routledge
• Year: 2008
• ISBN:
  9781134050086
• Edition: 1
• Topic: Histoire
• Subtopic: Histoire de la Chine

Three decades of reform since 1978 in the People's Republic of China have resulted in the emergence of new social groups which have included new occupations and professions generated as the economy has opened up and developed and, most spectacularly given the legacy of state socialism, the identification of those who are regarded as wealthy. However, although China's new rich are certainly a consequence of globalization, there remains a need for caution in assuming either that China's new rich are a middle class, or that if they are they should immediately be equated with a universal middle class.

Including sections on class, status and power, agency and structure and lifestyle The New Rich in China investigates the political, socio-economic and cultural characteristics of the emergent new rich in China, the similarities and differences to similar phenomenon elsewhere and the consequences of the new rich for China itself. In doing so it links the importance of China to the world economy and helps us understand how the growth of China's new rich may influence our understanding of social change elsewhere. This is a subject that will become increasingly important as China continues its development and private entrepreneurship continues to be encouraged and as such The New Rich in China will be an invaluable volume for students and scholars of Chinese studies, history and politics and social change.

Part I
Class, status and power

1 Why China has no new middle class

Cadres, managers and entrepreneurs¹

David S.G.Goodman

The prime beneficiaries and the agents of the rapid economic growth in the People’s Republic of China (PRC) since the early 1980s have been a whole range of new entrepreneurs who in large and small ways; in retail, manufacturing and services; have invented, invested, owned, and managed their way to varying degrees of wealth. Since the late 1980s and early 1990s, these entrepreneurs have been increasingly described as China’s new ‘middle class’ or ‘middle classes’ by academic and more general media commentators outside the PRC (Glassman 1991; White, Howell and Shang 1996; Goodman 1999a; Lardy 2007). In the process a parallel is clearly being implied between the PRC’s socio-economic development since the late 1970s and the consequences of industrialisation in Europe over a longer period starting at the beginning of the nineteenth century.

While the rhetoric of convergence between once apparently widely divergent social and economic systems is comforting, and is an oft-repeated subtheme inside and outside the PRC, this assumption of equivalence is also easily rushed. The middle class is not a simple concept but is made up of different elements and is itself often regarded as stratified: one clear reason that reference is also often made to the middle classes in the plural. Interestingly the middle classes are now generally seen in industrialised societies as the large, middle sectors of contemporary hierarchies of economic wealth, social status and political power, identified as much by their consumption and adherence to style as in socio-economic terms (Robison and Goodman 1996a).

Current conceptualisations of the middle classes are related to but somewhat different from the emergence of the concept of middle class, and its origins, in the European context. Though the concept is necessarily complex, it can be broadly reduced to two general and historically determined definitions: the bourgeoisie, and (separately) the managers of the modern state. Starting with the early nineteenth century, the bourgeoisie were a new middle class created by the process of industrialisation. They were the captains of industry whose ownership of the means of production—extraction, processing and manufacturing activities—drove industrialisation, and they became a middle class because they were neither the landed aristocracy on the one hand, nor ordinary townspeople on the other. As industrialisation deepened towards the end of the nineteenth and beginning of the twentieth centuries both economic enterprises and the modern state itself became more complex, producing managerial and professional classes. These too were a new middle class because while they neither owned capital nor controlled the state, they served either or both and derived their income and status from service and management rather than ownership of the means of production (Burnham 1972).

In both cases the significance of these new middle classes is as much if not more political as it is social and economic. The demand for a widening of the franchise and the emergence of liberal democracy during the first half of the nineteenth century in Northwest Europe are often seen as necessary results of the emergence of the bourgeoisie. The managerial revolution of the first half of the twentieth century is part and parcel of the development of mass society, mass politics and the welfare state (Kornhauser 1959; Galbraith 1967).

While the PRC has clearly seen the emergence of new categories of entrepreneurs, the key question is the extent to which these new rich can be identified as the equivalent of the middle classes in other, earlier socio-economic contexts (Pearson 1997; Wank 1999; Guthrie 1999; Dickson 2003a). There is certainly a growing discourse of middle classness in domestic self description of social change in the PRC (Qin 1999; Li 2004; Zheng 2004a; Zheng 2004b; Lu 2002; Xinhua 18 June 2007) as well as (as already noted) from the outside. To some extent and from some perspectives regardless of socio-economic construction the assumption of middle class behaviour, especially in patterns of consumption, is not just reasonable it is also to be expected as a function of globalised commercialisation. Gucci, Loewe and Louis Vuitton are brands targeted at the wealthy consumer in Shanghai and Beijing as much as in Milan, London and New York.

At the same time, there is room for caution lest too much is read into the PRC’s processes of social change. Identification of middle class behaviour in the contemporary PRC does not necessary entail an equation with earlier middle classes in other societies, and it is clearly just as necessary to isolate differences as well as similarities. In particular, there are three aspects of the emergence of the PRC’s new rich categories of entrepreneurs—which separately highlight their relationship to social status, economic wealth and political power—that suggest they are less the new middle class than a future central part of the ruling class. In a sense, the PRC had a managerial revolution before a bourgeois revolution (though of course history does not start in 1949) with the creation of managerial and professional classes as part of the development of the modernising state during the 1950s. Certainly the entrepreneurs of the post-1978 era include not just the comfortably well off but also more dramatically the rich and the super-rich. At the same time, they have been and remain unlike the European bourgeoisie of the first half of the nineteenth century in the extent to which they have emerged from and have close relationships with the established political system.

The PRC and the middle class

It is considerably easier to regard the new rich of the post-1978 PRC as equivalent to a European or North American middle class if modernisation is dated only from the post-Mao era. However, the sustained economic development experienced since the early 1980s is not China’s first taste of modernisation. Though modernisation is clearly a contested concept, in broad terms it is possible to identify three eras of industrialisation and modernisation in China’s twentieth century experience.

The Republican Era saw sustained attempts at modernisation in various parts of China under both warlord rule and colonial influence (Spence 1990; Sheridan 1975; Gillin 1967; Kapp 1973; Henriot 1993). This included the development of the iron and steel industry, large-scale coal mining, a machinery industry, a textile industry, financial institutions, shipping and railways, as well as an exceptionally large cigarette industry. Largely because much of this economic activity was externally sourced, owned or supported, by the early 1920s some of China’s various economies were considerably better integrated into the world economy than was to be the later case from 1937 through to 1978 (Richardson 2005). Even mountainous counties some distance from the coast, such as Liaoxian in North China’s hinterland (on the borders of Shanxi and Hebei Provinces) were supplying products to external markets by the 1930s (Xu and Chen 1992:556).

Of probably greater importance to understanding the most recent political economy of change, the establishment of the PRC once the new regime was secured ushered in a renewed and sustained industrialisation and modernisation, after the dislocation of the 1930s and 1940s. The years from 1952 to 1978 were not without their economic problems, notably during the early 1960s when the economy threatened to implode in the wake of the Great Leap Forward, or during the height of the Cultural Revolution when production was impeded. Nonetheless, the PRC economy achieved an overall 6 percent per annum growth rate throughout the Mao-dominated era (Ma 1990:6).

At the heart of this growth was the development of a modern state, including the construction of communications networks, and the provision of education, health and welfare infrastructure, if more focussed on the urban than the rural areas. Certainly the bourgeoisie and generally the large-scale owners of property were dispossessed during a series of campaigns designed to ensure the socialisation of the means of production during 1952–5 (Gardner 1969). At the same time the 1950s saw the growth of managerial and professional occupations in the service of the new state, its administration and economic management, who in many ways can be regarded as the backbone middle classes of the PRC: clearly not a term that would have been employed in the PRC itself during an era dominated by the ideological formulations of Marxism-Leninism-Mao Zedong Thought. They were and to a large extent still remain, both socially and individually, those who were the instruments of the state and capital as opposed to strategic decision-makers or front-line producers.

The establishment and development of the new state required a sizeable force of officials. While considerable attention always focuses on the cadres and leading cadres who peopled the Party-state, the new bureaucracy also engendered a large army of lower order officials and administrators, referred to in Chinese as ‘petty cadres’ (xiao ganbu) (Barnett 1967). To a large extent these petty cadres were the essence of the bureaucratic state established by the Chinese Communist Party (CCP). The more senior cadre positions were most usually filled by those who had joined the CCP and the revolution before the end of the War of Resistance in 1945. As the Communist movement grew during the Civil War these individuals attained positions of leadership which then transferred to the new state in and after 1949 as the CCP expanded from North and Northeast China to occupy the whole of the country and they effectively became the new ruling class (Teiwes 1967; Goodman 1980; Bo 2002). Under their leadership, the Party-state had responsibility not only for state administration and regulation of social life, it also provided social and welfare services, and ran the economy. Economic production was completely state directed even though only part of the economy was managed immediately through government departments. The officials, administrators and managers who staffed this extensive bureaucracy were initially hired locally during the early 1950s and while that practice continued, it was supplemented by the allocation of university students on graduation to positions anywhere in the PRC (Whyte and Parish 1984).

Alongside and sometimes overlapping with the bureaucracy of state socialism the new state also ensured the further development of the professions, which expanded way beyond their beginnings in the Republican Era. Teachers, doctors and engineers were the most numerous as the modernising state expanded its activities and reach. At the same time, the 1950s also saw the emergence of career paths for other professions including lawyers and economists, albeit heavily politicised. These intellectual middle classes were precisely those who were criticised during the Cultural Revolution in the late 1960s for having become the ‘stinking ninth category of counter revolutionaries’. Many lost their positions and possessions, at least temporarily until the 1970s, were sent to the countryside or the front-line-of-production for ‘re-education’ and some were physically abused (Esherick, Pickowicz and Walder 2006; MacFarquhar and Schoenhals 2006).

The PRC’s drive for further industrialisation and modernisation after 1978 appealed to and to some extent relied on these managerial middle classes and their families. Just as the reputations of leading cadres removed during the Cultural Revolution, and sometimes the individuals themselves, came for the most part to be gradually restored through the 1970s, so too middle class reputations rose again. The process of restoring their positions in society and employment had already started well before Mao’s death in September 1976. However, the late 1970s saw a more complete and explicit restoration, often including the payment of reparations. Education and training were generally put back on the agenda by the Party-state as it sought economic growth, and the various types of professional knowledge and expertise were to be once again mobilised to the PRC’s developmental goals.

Entrepreneurs and enterprise development

The identification of professional and managerial middle classes in the PRC does not necessarily mean that the entrepreneurs to have emerged as a result of the economic reforms introduced since 1978 are not also middle class. It does however require that they be examined as such more closely both in terms of the PRC’s development and in the wider comparative context. In particular, it draws attention to the specific characteristics of the new entrepreneurs as a middle class, and their relationship to the professional and managerial classes. Clearly, these two broad social categories may have much in common, not the least of which is a shared set of life-style aspirations, including living in one’s own house, having a car, ensuring private education for one’s children and engaging in leisure time activities that may include holidays elsewhere (Goodman 1998). It is also possible that members of the pre-1978 professional and managerial middle classes transformed themselves into new-style entrepreneurs during the 1980s. At the same time, acknowledgment that there has been and remains a statesponsored professional and managerial middle class does suggest that the new entrepreneurs may not only be a different kind of middle class but also that the processes of middle class formation and conceptualisation in the PRC may be somewhat different to those that occurred in the earlier European context.

Since the early 1990s, a series of interviews of entrepreneurs have been undertaken in different parts of China. These have included surveys in Hangzhou during 1991–3 (Goodman 1996); Shanxi Province during 1996–8 (Goodman 2001) and 2000–2 (Goodman 2006); Qinghai Province during 2001–3 (Goodman 2005); and in Jiaocheng County, Shanxi during 2003–4 Qiongshan City, Hainan during 2004, and Mianyang City, Sichuan Province during 2004–5 (Goodman 2007). Entrepreneurs have been asked about their social backgrounds (and that of their families), their careers and their entrepreneurial activities. In terms of middle class formation, there are three clear conclusions highlighted in each set of interviews. The first is that the new entrepreneurs are a complex and not a simple social category, including not only owner-operators in the private sector but also managers of state-, collectively-, privately-, and foreign-owned enterprises, as well as oftentimes confusing combinations of these various sub-categories (Nee 1992). The second relates to the wealth of the new entrepreneurs. While there were some disastrously unsuccessful entrepreneurs and others who were only of moderate wealth, many were not just comfortably well off by the standards of their local economy when interviews were conducted, but were clearly the rich and the super-rich. This conclusion draws attention to the parallels between the contemporary new entrepreneurs in the PRC and the nineteenth century European bourgeoisie. The third overall conclusion limits such arguments by highlighting the close institutional and associational links between the new entrepreneurs and the Party-state: they are neither independent of nor excluded from the political establishment, which on the contrary seeks actively to incorporate them if there is no pre-existing relationship.

The notion of any ab initio industrialisation in the PRC since 1978 is rapidly dispelled by consideration of the processes that generated new entrepreneurs in the reform era. The model of a single individual who has an idea, seeks capital, and establishes an enterprise to develop an invention or innovation is only broadly applicable in the PRC (Krug 2004). Broadly speaking the new enterprises that have emerged during the last three decades have emerged in one of four ways, differentiated by source of the initial capital and resources.

Historically, the introduction of greater measures of market determination and the development of new types of enterprise started in the rural areas, or more accurately the sub- and peri-urban rural districts of cities. Through the 1980s and 1990s Town and village enterprises (TVEs) became the mainstay of the collective sector of the economy, and grew out of rural economic activities and perceptions of spare labour or other forms of underutilised capacity (Oi 1989; Henriot and Lu 1996; White 1998; Oi 1999; Whiting 2001; Yep 2003). In the Hangzhou area, one village transformed its machinery workshop, which had access to wire products, into a production line for using wire to produce elaborate gift cards for the Japanese market. It was soon so successful that the production line became a large-scale factory and the village ceased agricultural production. In Yuci (in Shanxi Province) another village agricultural machinery workshop turned to aluminium radiator production; in Yingchuan (also in Shanxi) surrounded by coal-mining, coal by-products, particularly plastics, were produced. These enterprises and their development were led by local individuals, often the former workshop manager or some other level of local leadership who was able to mobilise their fellow villagers. Though technically managers and not owners of the TVEs, many behaved economically, socially and politically as if they were.

The state sector of the economy saw similar processes at work. The previous system of state socialism had been characterised by large-scale production and inherent economic inefficiencies. Increasingly after 1984, economic reform inevitably resulted in managers seeking economic efficiencies and partly in consequence new opportunities to use the assets they controlled. In a variety of ways, state assets were developed or built on to produce an economic return. Often subsidiary companies operating in the collective sector of the economy were established by the state owned enterprises or department of the state administration (Blecher 1991; Duckett 1998; You 1998).

In North China an iron and steel works at the start of the reform era was a complex organisation that like other large-scale, state-owned enterprises at that time attempted to meet most of the social and welfare needs for its workforce and their dependents. The enterprise had canteens, farmlands to supply the canteens and trucks to transport the agricultural produce to the canteens. Before reform little attention was paid to the low level of economic activity generated by the canteens or the trucking department since they fulfilled their allotted tasks of feeding the workforce and transporting produce to the canteens once a day. With reform, each of these activities was hived off as a separate company, technically owned by the parent stateowned enterprise, but under the control of the previous management who had been assigned to the new collective sector enterprise. Each was provided with a contract to provide services as before but now in order to survive they also had to find additional moneymaking work in the open market. In Hangzhou, the now PRC-wide famous Wahaha drink and food company was born from the non-profitable print shop of a secondary school when its managers realised to survive they had to not just diversify but find new economic activities.

Though many of the collective sector enterprises were established by state owned parent enterprises, the reallocation of state assets in these ways also sometimes left less than clear distinctions between ownership and management. State sector enterprise managers who led the way in reforming their companies clearly remained as managers whatever their level of emotional investment in the newly developed undertakings. Managers of new collective sector enterprises that had grown out of state assets on the other hand often, like their semi-rural counterparts, behaved in many ways like owners. In Hangzhou on one occasion, one such entrepreneur was asked if the state assets that had been effectively reassigned to their new style enterprise had been repaid in any way. The response was clear: There’s no need. These were previously All-people’s assets, and we are the people.’

There certainly are private sector owner-operators who have developed their businesses from nothing based on an innovative idea or perceived market opportunity (Young 1995; Garnaut and Song 2003; Dickson 2003a). In the various surveys undertaken since the early 1990s, they have been found in all industrial sectors and activities, including mining and heavy industry, as well as light industry, processing, retail and service industries. In general, most private sector owner-operators remain small-scale. As their business grows and they wish to scale-up the pressure for access to factors of productioninvestment capital, land, labour and political permission—essentially dictates that the successful private entrepreneur has to surrender part of their equity to local government and incorporation as a collective sector enterprise. As with TVEs and those companies tha...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of illustrations
• List of contributors
• Preface
• List of abbreviations
• Introduction The New Rich In China: the dimensions of social change
• PART I Class, status and power
• PART II Entrepreneurs, managers, and professionals
• PART III Lifestyles
• Bibliography