Middle Class Vulnerability in China: Measurement and Determinants

Abstract

The middle class has become an important force in enhancing social cohesion and alleviating the polarisation between the rich and the poor. However, the extent of vulnerability in the middle class is not yet known, especially in developing countries, where a large proportion of middle-income households are still vulnerable and severely vulnerable. This study provides important insights into the middle class and the extent of their vulnerability in developing countries. Specifically, this study utilizes the Vulnerability as Expected Poverty (VEP) methodology to measure the vulnerability of middle-income class in China and analyses the relative importance of different determinants based on data from the China Family Tracking Survey (CFPS) in 2018. The main finding is that in China, only 34.5% of the population belongs to the middle-income class, with 62.3% of the middle-income population still exhibiting vulnerability. Notably, at the top of the pyramid within middle-income class, nearly half of the population is at risk for slipping into the low-income class in the future (44.3%). In addition, rural areas are particularly vulnerable (70.5%). We also found that education and household properties are decisive factors in reducing the vulnerability of the middle-income class, especially the latter, which remains a key impact on reducing household vulnerability. In addition, we further estimate heterogeneity in terms of income and household size, and the results remain robust, with a greater mitigating effect of education and household properties as household income and size increase.