China’s economy

A reader of Martin Wolf’s recent FT column on China’s transition to a developed economy reminds us that the country, though now classified as ‘middle-income’, is still very poor.

[China’s] transition is not helped by the widespread myth that it has already become a middle-class society. Last year’s report from the Asian Development Bank, for example, titled “The rise of the middle class in the People’s Republic of China”, claimed that by 2007 “there were over 1bn people belonging to the middle class”. The ADB defines middle class, however, as those with “$2-$20 (purchasing power parity) per capita daily income”. Yet this level would be below the poverty line in most western societies. Equally, its definition of the “super-rich class” includes those with an income of $100/day and above, rather than millionaires and billionaires.Such wishful thinking represents a significant barrier to the growth of China’s domestic consumption. It has led to a major diversion of precious resources, as companies rush to provide western-style goods for a market that doesn’t exist. Far too few understand that affordability, rather than luxury, is the key criteria for success.

Paul Hodges, “Chinese want affordability not luxury“, Financial Times, letter to the editor, 23 March.

Mr Hodges is Chairman of International eChem, a UK consultancy firm serving the chemical, petrochemical and polymer industries.

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