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In Today's Asia, How Do We Define "Middle Class"?

The good life
The good life
Betty Ng*

We often hear about the rise of the middle class in Asia, and in particular in the fast developing countries such as China and India. However, what exactly is the “middle class”?

The term is widely cited around the world, applied without hesitation by all sorts of people. Nevertheless, it means different things to different people in different places.

In some countries, being middle class might mean owning a house and a car. In others, it may just represent having a roof over your head and a toilet.

Even within the same country, its implication can be different in different places. What “middle class” implies in Beijing could be very far indeed from what it means in Wuxi or Chaozhou.

The meaning of middle class will also naturally change over time. In the 1980s, when China had only just begun its economic reforms, people with a refrigerator and a TV set were to be envied, whereas today this is far from enough for many urban Chinese who expect a higher standard of living comparable to those in Singapore, Taiwan and Hong Kong.

Even more complex is the fact that “middle class” also contains other layers. In many places of Asia, such as Hong Kong, Taiwan, Singapore or South Korea, it is almost a synonym of “middle-income”. Whereas in India, “class” implies one’s social status, education, or caste lineage.

Therefore, if a comparison is to be made between places, it’s probably better to be made using “middle-income” from the purely economic point of view. But even so, the problem persists. Within one country or city, each individual may draw a different boundary. Even if we use reliable data, it is still difficult to define middle-income. Should it be 50% of the households in the city or 68%?

The market's definition

Just as the market can determine the prices of stocks or properties, we can also use it to define middle income.

We posed two identical questions in ten Asian cities where we conducted surveys. First, for a typical family consisting of a couple with a school-age child, what levels of income belong to the “low-income” and the “high-income” groups? With the boundaries of high and low, we’d be able to find the “middle.”

We investigated more than 500 respondents in each city following statistical indicators. This sampling size is sufficient in providing representative results. Inevitably, online questionnaires ignore inhabitants with particularly low or high incomes within these cities. This is because the ones with very low income may not have Internet access, whereas the rich are less likely to participate in such a survey. However, our method still covers a wide range of incomes (from the lowest 10% to the highest 10%), professions, and age groups (18-54 years-old).

The results of the survey were a surprise. None of the cities can define clearly what the low, middle or high income is. All the investigated cities lack a definition that a majority of people would agree with.

For instance, in Beijing and Shanghai, the most common definition for a “low-income household” is to have a monthly income of 5,000-7,499 RMB ($615 to $923), however, this represents 33% of all respondents. The answer that comes second, with 25%, is of 2,500-4,999 RMB ($308 to $616) for a monthly household income. The most common definition for a “high-income household” is a monthly income of 20,000-29,999 RMB ($2,463 to $3,695), but this also represents only 27% of all respondents.

If there is a lack of a consensus about what rich and poor is, then can a “middle-class” or “middle-income” really exist? Or do Asians somehow live in a classless society? These questions are worth thinking about.

According to our survey, people usually define levels of income in relation to their own household income. The more one household earns, the higher their definition of what a high income is.

Many people’s income will change with age, experience, education and environment. Their definition of rich and poor will also evolve accordingly as time goes by. Some might always feel they don’t have an adequate amount of money. Even if one has made a fortune, one’s standard of wealth might go up at the same time.

This also explains why some people take significant investment risks. The taste of success will yield even greater expectations. Unfortunately, excessive expectation may result in substantial losses. The spread of this kind of mentality may also increase market volatility.

In the developed world, people generally attach more importance to preparing for one’s retirement. Market volatility thus tends to be lower in general. Often, people’s financial management behavior is based on their need rather than their desire, which are two very different concepts. To many Asians, at a personal level, it’s perhaps easier to differentiate the “need” and the “desire” than to obtain a consensus on the definition of the middle-class. This would also be more helpful.

*Betty Ng is director of Fidelity's Asia-Pacific investment communications, and a columnist for Caixin media

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