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The American middle class is in distress. Here's what that means to the world's largest economy, and the rest of planet earth.


America the Gutted: The island of migrant steel

Six thousand miles from the coast of the United States, a new group of ironworkers are building bridges and, slowly, their own economic futures.

by 2021, China’s middle class could number more than 670 million, dwarfing the US in its power to drive international markets.

Yet China's middle class differs in substantial ways from its American equivalent. First, their wages are significantly lower.The average factory worker makes just over $6,000 a year in Shanghai, and that's more than in any other Chinese city.

Second, because millions of these workers are migrants, China's "hukou" or home registration system excludes them from middle class services — such as education, health-care and social security benefits — available to those born where they live.

Wang Pei, the welding overseer, is one of this sea of migrants, having left his home in Jiangsu province 10 years ago to join Zhenhua. With a salary of more than 3,000 yuan a month ($480), he is proud to have a better quality of life than his parents, and he considers himself part of the lower-middle class.

Like many migrant workers, however, as his pay has risen, so have his expectations. He feels shut out from the opportunities available to those who have studied at university, or who have better connections.

“We don’t have many choices,” Wang says of workers like him. “We don’t have the ability to earn money in other ways.”

Indeed, some analysts say that much of China’s economic growth over the last two decades has flowed largely to its elite. The country’s stark inequality has led to feelings of pessimism even among those who have benefited from its growth.

“Rather than a middle class of laborers in the manufacturing industry, China has seen disturbing levels of income inequality, and the emergence of a new ‘elite’ class at the same time that the United States is experiencing similar shifts,” writes Nan Chen, a lawyer and analyst, in Foreign Affairs.

And while China has benefited immensely from the outsourcing of American jobs, its export-driven model is now facing headwinds. Rising wages are making the country a less-appealing place for manufacturers, and domestic consumption has stayed stubbornly low.

"It has proven very difficult for China to raise the GDP share of consumption, largely because consumption-constraining policies are at the heart of China’s growth model," writes Michael Pettis, professor of economics at Peking University, in a recent research note. "It will take many years of adjustment before consumption is large enough and can grow into its proper role."

Even China’s steel sector, the world's largest, is now showing signs of trouble. Rampant overproduction has filled China's cities with 15 million metric tons of surplus steel. Zhenhua itself has fallen on harder times since winning the Bay Bridge contract in 2006. Its stock price has fallen to new lows 11 times in the last nine months, and the company's net income and sales have fallen precipitously in the last three years. 

Ultimately, it is unclear where China’s new middle-class jobs will come from, but analysts say it’s unlikely that export-driven companies like Zhenhua will be able to play as big a role. The hope now is for China to move up the value chain to white collar, high-value, innovative work — but the path toward that goal isn't easy. 

“For innovation to take hold, you need to have a spirit of freedom, but in China this is lacking,” Cheng Li of the Brooking Institution said in an interview with Booz and Company. 

Still, Wang, the steelworker, is optimistic about the future. He says he is proud of how China has grown, and believes its leaders in the Communist Party care for the country “like a father.” He is saving up to buy a house for his wife and three-year-old son, and in the next decade, he dreams of going into business for himself. 

It’s a familiar-sounding middle-class aspiration that, to American ears, may sound sadly like something from yesteryear.

But Wang also has his share of anxieties. He seldom sees his family, though he has it better than many. He misses his wife, but feels this is the cost they must pay for a better future.

Asked if he is happier now than before he left Jiangsu, he says, “Actually, I felt much happier at home.”

But when it comes to extending sympathy to American ironworkers, Wang says that they are lucky to have a welfare system to take care of them.

“America should be proud because they saved money by doing it in China. Their life quality is much higher than here. They get better welfare and the lowest income there is much higher than here too. It may have caused some people [to lose] their jobs, but it’s not something we can take into our consideration” he says. 

"They [the Californians] made the right choice."