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US/China Trade War Underms Chinese Middle Class 
May 20, 2019
 
The trade war between Washington and Beijing reached a peak as the U.S. increased tariffs on Chinese goods to 25% as a result of a failure to reach a deal by the May 9thdeadline. At a corporate level, Morgan Stanley said the increase could reduce Apple’s EPS by 23%. On a local level, the Chinese middle class’ political clout and fickle views are among the most intriguing—and consequential—factors affecting U.S.-Chinese relations. Over the past few months, members of China’s middle class have been noticeably critical—especially in online public discourse—of the Chinese government’s economic and sociopolitical policies, including the way the leadership has handled relations with the United States. Some suggest that this middle-class discontent threatens President Xi Jinping’s broader position and economic vision and indicates that the United States holds the advantage in the trade dispute with China.. Although the middle class has faulted Xi’s leadership, a severe escalation in the trade war could result in a sudden shift of blame to Washington. China’s fast-growing middle class is facing undaunting economic challenges, which mainly stem from domestic causes but have expanded to include escalating tensions with the United States causing an acute sense of anxiety. China’s stock markets have plummeted about 24 percent from January highs, and the Chinese yuan has fallen about ten percent against the U.S. dollar since the Trump administration first announced China-directed tariffs in early April. Property market fears have spread from major metropolises, such as Beijing, Shenzhen, Guangzhou, and Shanghai, into second- and third-tier cities as the property market hung like “the sword of Damocles over the Chinese financial system.” In recent years, a slowing economy, coupled with official corruption, environmental degradation, food and drug safety scandals, and tightening political and ideological control, has sparked complaints and heightened criticism. The sheer size of China’s middle class and the speed of its expansion is an important determinant of the country’s economic health and political trajectory. Virtually nonexistent just three decades ago, the middle class now encompasses as many as 400 million people, according to Chinese official accountsas more than 75 percent of Chinese urban dwellers (over 550 million people) could be members of the middle class by 2022.
 
The Chinese middle class comprises three major clusters. 
 

• An economic cluster composed of small business owners and entrepreneurs, real estate and stock speculators, and foreign and joint-venture employees.
• A political cluster populated by low-level government officials, office clerks, and state-sector managers. 
• A cluster oriented around culture and education and consists of media figures, academics and teachers, and other intellectuals.

 
These differing groups share what some Chinese scholars call “core middle-class values and attitudes”, including an appreciation of the middle-class lifestyle, affinity for policies that promote education and safeguard the environment, vested interest in the protection of private property rights, resentment of the government’s Great Firewall online, favorable attitudes toward economic globalization, and pride over China’s rise on the world stage. During Xi’s first term, members of the Chinese middle class generally applauded the president for his bold anti-corruption campaign, sweeping military reforms, and strong commitment to green development. recently middle-class enthusiasm for Xi has conspicuously waned following his decision last spring to amend China’s constitution, especially his decision to abolish presidential term limits, a move that effectively granted him a lifetime tenure. The economic cluster within the Chinese middle class holds reservations about Xi’s strong support for state-owned enterprises, whose government-subsidized expansion has come at the expense of private firms. The political cluster may be under tight control by the party leadership and thus will not publicly express its concerns. Most of these elites came of age politically during the Deng Xiaoping era and generally appreciate the institutionalized rules and regulations that have governed their career trajectories. More important, they fear a lack of succession mechanisms could herald a return to an era of vicious power struggles.
 
For middle-class intellectuals in China, Xi’s constitutional amendments crystallized earlier disillusionment. Since 2013, when Chinese authorities began restricting open discussion in public settings of “seven subversive currents”—which include constitutional democracy, human rights, civil society, and media freedom—intellectuals have turned increasingly critical of the party leadership, especially online. Xi’s strongman politics and Cultural Revolution-style personality cult have further alienated members of this group. Xi’s actions are viewed as playing into Western fears about China. From this vantage, Xi has provided American hawks with further evidence to conflate China with other authoritarian regimes such as Russia and Turkey. Fostering an atmosphere of distrust, it is believed, can only strengthen interest in a U.S. containment policy toward China. For example, the collapse of the online P2P (peer-to-peer) lending markets, which wiped out about 7,000 platforms and affected hundreds of thousands of middle-class investors and the revelation that faulty vaccines for diphtheria, tetanus, and whooping cough had been administered to nearly half a million children.
 
As U.S.-Chinese trade frictions have mounted, Chinese social media has seen a new wave of criticism—both explicit and implicit—directed toward the party leadership. Fairly or unfairly, Chinese citizens go online to bristle at the leadership’s overconfidence in China’s economic leverage, misallocation of state financial resources for personalized domestic “achievement projects” and ill-evaluated foreign aid programs, and miscalculation over the Trump administration’s strategy toward China. The Chinese middle class has leveled its ire at the Communist Party leadership, but the object of middle-class criticism is neither fixed nor exclusive. Strong U.S. pressure on trade, combined with China’s vulnerable position, does not necessarily mean that the Trump administration is winning or that the current dynamic will hold. The Chinese media, which were more favorable of Trump than U.S. outlets during the first year of his presidency, now largely attribute trade friction to a “crazy” and “greedy” American president. U.S. trade actions against China and the Trump administration’s strategic shift—from partner to rival—have led most Chinese to conclude that the primary goal of the United States is nothing more than to contain a rising China. Xi and his team will likely also adjust economic policies to counter increasingly vigorous U.S. trade tactics. The leadership has an incentive to adopt more economic reform measures, including accelerating domestic consumption, instituting new financial mechanisms to support small private businesses, and promoting imports. They will more aggressively pursue economic cooperation, primarily with Russia but also with the EU, Canada, Japan, and many other countries throughout the world.
 
Many Chinese are deeply familiar with two major events in recent history, namely Japan’s “lost decade” of economic growth, the 1990s and the collapse of the Soviet Union in 1991. Some official Chinese sources have implied that both episodes were products of an American conspiracy. Fear of a similar plot against China—however irrational—might ultimately be enough to tip support in favor of Xi’s aggressive response.  The Chinese middle class’s disappointment seems especially acute because the United States’ own middle class has long served as a model for China’s fellow strivers. From 1978 to 2014, China sent a total of around 1.4 million students and scholars to the United States. Many returned home with renewed aspirations for American-style middle-class lifestyles and values. Recent statements by U.S. government officials implying that professors, researchers, and students from China serve as spies for the Chinese government, as well as confrontational statements such as FBI Director Christopher Wray’s characterization of China as a “whole-of-society threat,” have bred deeper hostility. Where once the Chinese middle class eyed the United States with envy, it now looks on with despair.” Washington’s failure to distinguish the perspective of the CCP ruling elite from that of Chinese society more broadly risks undermining the effectiveness of U.S. policy toward China. China is currently in the midst of a delicate process to transition its economy away from manufacturing and toward domestic consumption and innovation. Its leaders view this shift as fundamental to sustaining the growth of China’s middle class and, consequently, preserving support for Communist Party leadership. The Chinese leadership knows the tremendous and ever-increasing political influence of China’s middle class. U.S. policymakers would be wise to grasp this same dynamic. From: Foreign Affairs