It’s 3:00 a.m. in the most populated city of the world’s most populated country. Most of Shanghai’s 24 million inhabitants are fast asleep, but it’s rush hour inside the city’s largest wholesale fish market.
The Tongchuan Road market supplies the metropolis with one of its most popular staple foods. Vendors wearing rubber boots rush through miles of twisting, cramped corridors covered with a thick film of fish guts. It’s a slimy, lively labyrinth that’s difficult to navigate, not unlike finding one’s way into China’s elusive middle class.
Zhang Wenquan knows this all too well. The tall, muscular 47-year old kicks off his sneakers. He pulls on a pair of camouflaged rubber boots before entering the sprawling market, oblivious to the calls from competing vendors. Zhang grew up in the impoverished countryside of Anhui province. When he turned 17, he came to Shanghai to work on an assembly line. He met his wife at the factory, and they now sell fish at a small neighborhood market. Zhang wakes up at midnight each day to buy his merchandise here.
And “buy” might not be the right term, constant haggling is more like it.
“How much?” Zhang asks a vendor as he plunges his strong hands into a box of live shrimp.
“Fifty,” the woman barks back.
“Fifty? Yesterday you sold them for 48! These are too small!” Zhang says.
He repeats this with every vendor: Too small, too expensive, too ugly – at one stall he takes one look at a tank of fish and declares: “They’re all dead.”
“Buying fish is tougher than raising children,” Zhang says. “By this afternoon, everything I just bought will be dead and worthless.”
His children, on the other hand, could someday be the family’s ticket into China’s middle class. “I’m not working this hard so that my daughters end up working as fish sellers like me,” Zhang says. “They’ve got to go to good colleges and find good jobs with good salaries.”
Zhang has twin daughters, a stroke of luck in a country with a one-child policy. But that’s where he sees his luck ending. His girls are 16, they were born in Shanghai and call the city home. Yet, Zhang and his wife had to send the girls to the countryside last year so that they could finish their schooling. “They can’t legally attend high school in Shanghai because they don’t have Shanghai Hukou,” he explains.
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Hukou means ‘household registration’. If you don’t have Hukou for Shanghai – in other words if you’re not registered to live there – then you’re not eligible for social benefits like health insurance, a pension, or even a high-school education for your children. You have to return to where your family originally came from to qualify for those benefits.
China’s modern Hukou system has its roots in the country’s old communist-style command economy. Former Chinese leader Mao Zedong revived the ancient household registration system in 1958 as a mechanism to restrict peasants from swarming into the country’s largest cities. After the economic reforms of the 1980s, the system was relaxed to allow migrants to move to the city, but strict rules remain governing where their children can attend school and take college entrance exams.
Hukou supporters say controlling China’s massive population has helped prevent the creation of slums around its biggest cities that are common sights in the developing world.
The Zhang family Hukou belongs to his wife’s ancestral village in the countryside of Jiangsu province, and that’s why the couple has been without their daughters for more than a year.
At 6:00 a.m., Zhang arrives to his stall at a wet market in the Xujiahui neighborhood of central Shanghai. He’s dropped off the fresh fish, and his wife, Shi Huiqun, takes over the work so that he can go home and sleep. The 42-year old tells me business is tougher than it’s ever been: “Competition here is fierce,” she says with a sigh. “We used to be able to save money, but now we’re paying for our daughters to attend school back in my hometown, so we’re close to breaking even.”
Shi and Zhang own an apartment in Shanghai, a house in the countryside, a foreign car, and they make around the equivalent of $15,000 a year – three times more than the average urban family makes in China. Yet when I ask her if she considers herself middle class, Shi shakes her head. “I don’t think small business owners like us belong to the middle class. We don’t make that much money. What is the middle class, anyway?” she asks.
“I don’t know if anybody knows what the middle class is in China,” says James McGregor, Asia Chairman of APCO and author of the book, “One Billion Customers.”
McGregor says the first wave of China’s middle class were the 400 million people who grew up in China’s largest cities and are now – on paper – upper class. They became wealthy on China’s real estate boom and they now drink Starbucks, own iPhones, and drive imported luxury cars. “Maybe the middle class is China’s next wave of migrant workers who are getting legal registration in the cities and getting city services and becoming the next consumers,” says McGregor. “Actually, if you look at studies of the future of Chinese economy, that group of people, if you can get 10 million of them a year and they can become consumers, you can have 6 percent growth in China for 20 years.”
And that’s why China’s government has launched an urbanization campaign with the goal of moving a 250,000 rural Chinese to the cities over the next decade. Government propaganda posters throughout the country advertise “The Chinese Dream,” the guiding principle of president Xi Jinping’s government.
Back at the market, I ask Shi if she’s pursuing the Chinese Dream.
“What’s the Chinese Dream? Is that something from TV? I haven’t heard about it,” says Shi, embarrassed.
Instead, I ask her, “What’s your dream?”
“Originally, I dreamt that my girls could finish their schooling here in Shanghai,” Shi tells me, “but that dream never came true.”
Nearly half of Shanghai’s 24 million residents are in the same conundrum as Zhang and Shi: According to Shanghai’s municipal statistics bureau, nearly ten million children can’t attend Shanghai schools because they don’t possess city Hukou. Nationwide, it adds up to nearly one-third of China’s urban population: A quarter of a billion Chinese lack legal rights to social welfare and high school for their children in the cities where they reside.
China’s leaders have vowed to reform the Hukou system, but so far, meaningful change hasn’t taken place. Meanwhile, migrants continue to move into the country’s largest cities.
Today, though, Shi Huiqun is heading in the opposite direction. She’s driving two hours north of Shanghai to her rural hometown to visit her twin daughters. Shi has rented a bare, unfurnished apartment for them located next door to their private middle school. The 16 year-olds have had to repeat the 9th grade, because the curriculum in their new school is a year ahead of that of their former middle school in Shanghai.
When their mother arrives, the twins are studying their textbooks side-by-side. Their grandmother, who can’t read or write, stands guard behind them, making sure they complete their homework. Zhang Ming studies physics while Zhang Yue reads her English homework out loud. “Our own planet, the Earth is becoming more and more crowded and polluted because of the rapid increase of p … population,” she says in broken English with help from her sister.
The two are identical twins, they wear identical jackets and identical hairstyles – it’s nearly impossible to tell them apart. Throughout our conversation, though, their mother recites their differences to me: Zhang Ming is ranked 4th in class, Zhang Yue is 15th; Zhang Ming’s eyesight is worse; Zhang Yue is quieter; Zhang Ming is temperamental; Zhang Yue is lazier. The girls nod in unison.
Shi’s daughters tell me school here is much more demanding than in Shanghai. They’re in class from 6:00 a.m. until 9:00 p.m., and they attend half days on Sundays.
“I’d prefer to be in Shanghai,” says Zhang Yue. “I feel like a foreigner here. I think China should allow children to attend school where they grew up. We consider ourselves Shanghainese, but according to our Hukou, we’re not.”
Despite what their Hukou says, the family has come a long way. Shi accompanies me to the farm she grew up on down the road from the school – a couple acres of crops, pigs, chicken, and sheep. “I grew up here in a house with a dirt floor,” Shi tells me.
Life is better now, but not for everyone. Hukou laws have forced parents throughout China to leave their children behind – they’re called ‘left-behind children,’ and there are an estimated 60 million of them, nearly as much as the entire population of the UK. Shi isn’t too worried about her daughters because she and her husband are just a two-hour drive away. But for most left-behind children, that’s not the case. With their parents in another part of China, many of them drop out of school, all but removing an entire population of Chinese from the dream of making it into the middle class.
But the story of the Chinese economy is also about the expansion of wealth and the business leaders who have paved their path to prosperity. How did a poor communist country transform itself into having the second most billionaires in the world, after the United States, in just over a generation?
The Hurun Report is an annual survey of China’s wealthy. Hurun identified 400 billionaires in China, but there are another 800 yet to be profiled. The report estimates that one in seven people in Shanghai and Guangdong are millionaires – and it’s even higher in Beijing, where it’s one out of six.
It’s an extraordinary change from a centrally-planned economy where everyone was at least nominally equal. Hurun estimates that more than half of millionaires started their own businesses. Of the rest, 10 percent made their fortunes from the stock market, 15 percent from real estate, and 20 percent are highly-paid executives.
Of the super-rich – those with $16 million or more – the number of entrepreneurs stands out even more. Some 80 percent of the super-rich own their own firms and 15 percent made their money from real estate.
To put this in context, the self-employed make up only about 6 percent of the Chinese workforce. That’s much lower than in developing countries such as India, where it’s 82 percent.
The reason is because the market was only opened up to private enterprises in the past two decades when private firms were legally recognized and private contracts honored after the dramatic downsizing of the state-owned firms that have dominated since 1949. And those who took the plunge early on to start their own firms, such as Wang Jianlin, are among the richest people in China.
Sixty-year-old Wang Jianlin is the biggest property tycoon in China. His company, Wanda, is the largest listed real estate company in China. His company has built housing complexes, entertainment and shopping centers.
His firm catered to the middle class, taking advantage of the developing consumer market in China.
“Wanda is always trying to reinvent itself,” says Wang Jianlin. “We are constantly changing our business model, for example, we started with residential property, then we turned to business centers. Now, we are tapping into culture, finance, and even e-business.”
He believes that most Chinese companies are not reaching their potential.
“Currently, most Chinese companies are imitating. Innovative companies — be it technological innovation or business model innovation — are still lacking,” he says. “Chinese companies are still learning. I think it might take up to 10 years, or at least eight years, before Chinese companies can stop imitating their Western counterparts and become genuinely innovative.”
His desire for innovation has made his company invest in film production. The Wanda Studios in China will be the world’s largest film and television studios in the world when it opens in 2017.
“We don’t want to become another Disney,” he says. “For one reason, Disney is too old. It already has an 80-year history. I don’t want to be like that. I want to create a brand new Wanda Style entertainment project.”
Wang Jianlin built his business anticipating the needs of the emerging middle class. But China is still a poor country – on par with Peru in terms of Gross Domestic Product per person – and there are still strict rules governing how ordinary people live their lives.
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