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Who would constitute the middle class in the urban areas on China's mainland? How do they live? How do they spend their money?

As the mainland's economy continues to boom, the so-called emerging middle class has caught much public attention these days. Yet the vision of this particular group may remain vague for a few years.

The central government said last week that it is preparing to launch a new round of income distribution reform as it aims to enlarge the middle income group and try to narrow the expanding income gap.

While the government is putting increased efforts to widen the number in this group, researchers see a very positive perspective on the middle-class population on the mainland.

In a recently released McKinsey Global report, the firm states that under the current rapid economic growth in the mainland, more than half of today's urban workers will join the so-called "upper middle class" by 2025 and redefine the mainland market with their spending power.

Those with an annual household income below 25,000 yuan (US$3,129) account for 77 percent of today's urban workers on China's mainland. These people are very likely to join the "lower middle class," defined as households with annual income of 25,000 to 40,000 yuan in 2010, and a decade later rise to the upper middle class, with annual household income of 40,000 to 100,000 yuan, according to McKinsey.

The estimates about a rapidly emerging middle-class are based on the assumption that the rapid economic growth of China's mainland will enable most people to share the benefits arising from such expansion in a few years.

The average annual per capita disposable income reached 10,493 yuan on China's mainland last year, a year-on-year growth of 9.6 percent, said the National Bureau of Statistics. The mainland's economy grew 9.9 percent in 2005.

Meanwhile, the mainland's middle class will be unusually young compared with most developed markets whose highest earners tend to be middle aged, said McKinsey.

Income generally peaks between the ages of 45 to 54 in the United States, while the mainland's wealthiest consumers will be from 25 to 44 years old as the central government invests substantially in higher education for the younger cohorts, according to the McKinsey report.

Bulging spending power, together with a young age, will lure mass-consumer goods and service providers to the tremendous business opportunities in the mainland.

The emerging middle class has been cited as one of the main attractions for overseas companies to invest in China's mainland.

The pharmaceutical market is an example as more and more foreign drug companies have already noticed the huge potential.

"As people become richer, they are more aware about their healthcare,and willing to spend on it," said Mark Lotter, chief executive officer of Nova Med Inc.

China is the fastest-growing pharmaceutical market in the world. The market size in 2005 increased 28 percent from 2004, according to a senior researcher from the Research Department, the Scientific & Technical Information Institute of the Shanghai Municipal and Drug Administration.

Yet the fact is that a rapid economic growth will widen the earnings gap between low-income and high-income earners. There are various reasons for the increasing gap, and education plays an important role.

"Whether a person belongs to the middle-income group is decided by his or her income level in the whole social economic ladder," said Chen Wei, director of the economy research institute of Shanghai Academy of Social Science.

"But right now we do not see an obvious indication that this group will increase fast. Besides, fast economic growth does not necessarily mean fast income increase."

Also, a person's education is widely accepted as a key element that helps reduce income gaps.

According to an income survey by Beijing Statistics Bureau, among the families with average annual income above 50,000 yuan, 60 percent have college education background. Among these families, those with master's or even higher education possess the highest income level.

But the current education situation in the mainland is that only a small minority of people have a degree from college. These people, no matter which category they fall into now, are very likely to join the middle-class in the future.

For most people without high education background, they may only count on their children. That is why most of their income is saved for their children's education rather than spending except for necessities.

'Fast economic growth does not necessarily mean fast income increase.'

Different Lifestyles

IT is interesting to find out what kind of lifestyle current and potential middle class people in China's urban areas are leading. Shanghai Daily reporter Zhou Wenyue interviewed three families in Suzhou and Shanghai to find out what are the differences in their daily life.

Annual household incomes of below 25,000 yuan

Chen Yumei, 35, with only a junior high school education, works as a cleaner in a college with a monthly income of 600 yuan (US$75). Her husband works for a construction company with annual income of about 18,000 yuan, or 1,500 yuan per month. They have a 15-year-old son who is in middle school.

"We save about two-thirds of our salary for our son. He needs a lot of money in the future. We hope that he can have a college education background. My husband and I only finished junior high school," Chen said.

"We don't have any pension or medical insurance, so we also need to save for ourselves just in case, but we mainly save for our son."

"Besides everyday consumption such as food, electricity and water fees, my husband spends about 100 yuan every month to buy lottery. It is a big part for us but necessary. We really hope that one day we can win the 5 million yuan from lotteries so we don't need to count every single penny everyday."

Annual household incomes of between 25,000 - 40,000 yuan

Zhang Qingrong, 30, graduated from a vocational high school. He works for a Hong Kong company earning an annual income of 20,000 yuan (US$2,500). His wife finished high school and works for the same firm with an annual income of 12,000 yuan.

Though they both have pension and medical insurance, they still save 60 to 70 percent of their incomes for their six-year-old son who is going to primary school next year.

"We don't have much expectation about the future, we have a kid and we count on him. These days, education fees are so high, we have to save from now to make sure he can finish college education at least," Zhang said.

"It is hard to get a salary raise in this company. I have been working here for 3 years and no chance for promotion. I want to try other jobs, but we can't compete with younger people with higher education background," he noted.

Annual household incomes of between 40,000-100,000 yuan

Wang Jing, 26, works for a foreign computer company. His wife teaches English in a language-training institute. They both have college education, with a combined annual income of about 80,000 yuan (US$10,000).

They have a mortgage of 450,000 yuan, and they aim to repay it within 15 years. They have spent all their former savings after they bought the house. They have no savings currently.

"We are still young and want to enjoy our life," said Wang. Going to restaurants and entertainment takes up 70 percent of their monthly consumption.

"We have our shelter, we have a reliable pension and medical insurance, and we have no kids right now, so we don't have to worry about the future," said Wang.

"We are considering to quit our job to start our own business in a few years or switch to another company for higher salaries. All we need is to build up enough experience," Wang noted.

(Shanghai Daily July 13, 2006)