Meeting the middle

China slowdown sets scene for urban struggle

For politicians and peasants, China's 7.4 per cent gross domestic product (GDP) growth in 2014 is a happy outcome. Not so for the all-important demographic of middle-class city dwellers. The scene is set for a year of urban struggle.

China hasn't missed a GDP target since 1998, according to ANZ, which makes the slight deviation from its 7.5 per cent objective significant. The message accompanying the country's slowest growth rate in 24 years is that fixed goals have become a little less binding. That's enough to please reformists without frightening the Party faithful.

Urbanisation, another target, continues apace. A further 18 million people flocked to China's sprawling cities in 2014. However, keeping them happy once they get there is getting harder. While rural disposable incomes grew at a real rate of 9.2 per cent last year, the 6.8 per cent increase for urbanites lagged behind the overall expansion in the economy for the second year running. Public transport price hikes in Beijing, and cab driver strikes in several big cities, point to a world where the rising cost of living is beginning to bite.

If China's planners can't deliver rapid wage hikes in cities, they can try to offer other kinds of wealth: rising house prices, healthy stock markets and job security. But all three look weak. Housing sales fell every month of 2014, measured year on year, while the backlog of new construction continues to expand.

Labour markets are also fragile, if harder to parse. China added a net 10.7 million urban positions in 2014, compared with 11 million the year before. With those 18 million new urban residents, and 9 million new migrant workers, it's likely that the labour market is struggling to keep up.

That leaves stocks, which have lately created tremendous wealth for the 10 per cent or so of the population who buy them. New curbs on margin lending have taken the edge off a 60-per cent-plus rise over the past six months. But while policymakers work out how to stop the urban masses from becoming disillusioned, it might be expedient to try and keep the rally going just a little bit longer.