Strafor on the growing importance of the Chinese middle class. With the Economy going from export orientated to more domestically consumption dependent, it is crucial Beijing gets the right Ying Yang mix in order to take the Economy forward.

The Chinese Academy of Social Science (CASS), the country’s top think tank, recently released the 2011Blue Book of China’s Commercial Sector. In the annual report, CASS estimated that the country’s middle class could number 104 million (nearly 8 percent of the country’s population) by the end of the year. Interestingly, this number was significantly lower than another report released by CASS just a year ago, which predicted that the middle class would account for nearly one-fourth of the country’s population by the end of 2010. This discrepancy can largely be attributed to the nebulous definition of middle class; the criteria includes socio-economic status, ownership of property and purchasing power as well as many other things with different weights assigned to different indicators.

Nonetheless, whether the middle class is growing is not the primary issue for Beijing. Theoretically, the middle class is an important pillar sustaining the development of society — it identifies with mainstream values and serves to maintain social stability; its comparatively higher economic status means it can bolster domestic consumption and help to sustain dynamic economic growth; and it naturally embraces progressive ideas and thus could facilitate gradual economic and political reform. However, the Chinese government is much more concerned with retaining the support of the elites who form the foundation of the Party’s power. Beijing must, however, be wary of the mounting financial burdens that could eventually cause its middle class to shrink — an outcome that would threaten economic growth and risk widespread social frustration.

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Some reflections on the American Debt Burdened Economy, and further implications on the Society. For great insight reading on the increasingly polarized US society, we also recommend books by the French author Emanuel Todd.

If a drunk driver crashed his speeding rental car into your house and killed your spouse, you would be outraged if law enforcers took bribes and refused to give the driver a blood test. If the judge then gave the killer a small fine and ordered you to pay the fine and pay for all the damages, you’d be outraged. If the government then handed the drunk-driver keys to a bigger faster rental car, handed the drunk driver an even bigger bottle of whiskey, and then gave you the rental bill; you’d storm Washington, blizzard elected officials with protests and organize friends and associates to vote these malefactors, the elected officials that betrayed your trust, out of office.

Yet, we’ve remained largely silent in the face of the same sort of behavior by Wall Street and Washington. Bonus-seeking bankers crashed into Main Street’s economy and ran control frauds within banks that would have failed without taxpayer bailouts. Bureaucrats and elected officials bailed them out without demanding consequences. Bankers are revving their engines again in credit derivatives, currency derivatives, and commodities trades. “Financial reform” addresses none of the latter problems.

Arianna Huffington’s Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream explains that the $787 billion American Recovery and Reinvestment Act, the bank bailout package also known as TARP, allotted only $72 billion to infrastructure projects. Another feature of the bill was to have banks agree to lend money to medium and small sized businesses to stimulate the economy. That didn’t happen and official unemployment numbers remain above 9%, while unofficial figures for underemployed Americans soar above 20%.

The number one stimulus for any economy is not consumer spending, although that is a powerful secondary effect. The number one stimulus is capital spending, investment in the production of real goods and consumables. As Third World America explains: “There were three flaws with the old economy that has crashed. It favored consumption over production, debt over small savings, and environmental damage over environmental renewal.”

Our ongoing bank bailouts included the mispricing of around $4 trillion of toxic assets that the banks cannot afford to honestly price, since bank capital would be wiped out sparking another global financial meltdown. We continue to provide cheap taxpayer funding through the Fed. New accounting rules allow banks to cover-up the low price of impaired assets, and government debt guarantees provide ongoing subsidies to banks that have a value of trillions of dollars.

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