{I} n the half century since the end of the Mao era, the Chinese Communist Party has relied on a growing and increasingly prosperous middle class for its legitimacy. While about 600 million Chinese still live on five dollars a day and perhaps another 200 million rural migrants in first- or second-tier cities live on 15 to 25 dollars a day, they have little hope for advancing their lot in life because of Hukou, the regime’s harsh internal-passport system. The rural Hukou are not the citizens with whom the party has made its bargain of growing prosperity in exchange for tacit support of the regime. Rather it is the more highly educated and upwardly mobile citizens in Beijing, Shanghai, Shenzhen, and Guangzhou and in the numerous second-tier cities on whom the CCP depends. And it’s this group, with an urban Hukou, roughly 600 million, who are having a profound change of heart. For these, hope for a better future has been quashed. They were brutalized during the Covid lockdowns, which led to widespread tension across the cities. The regime acknowledged that social crisis by lifting the lockdown almost overnight. Unlike much of the post-Covid world, China remains mired in economic distress. The urban middle class is awake to the reality. This is a source of significant challenge to the party.

Indeed, PRC legitimacy at least in the past two decades has been based on the regime’s tacit agreement with the urban middle class to provide for their growing personal prosperity in exchange for their forsaking democracy and all its trimmings (a free press, free speech, free religion, and the like). With Xi Jinping’s ascension to the position of general secretary of the CCP in 2012, the concept was institutionalized as the “Chinese Dream.” Xi called for a national rejuvenation and for China greatness. Articulating the vision in 2012, he called for the country to be “a moderately well-off society by 2021,” the 100th anniversary of the CCP, and to be a fully developed country by 2049, the centenary of the PRC.

A dozen years later, Xi’s Chinese Dream is dead. Unemployment among college-educated urban residents is 20 percent or more. The lockdowns created resentment and anger, and economic growth has stalled. In reality, it probably is declining, despite official statistics to the contrary.

The middle class no longer believe that things will continue to improve for them. That could lead them to question everything else. The downward spiral has cast a psychological pall over everything. The urban real-estate bubble that created a perception of prosperity has burst, and there is nothing to replace it. For those who still have a job, wages are cratering and the currency is drifting downward in value to spur exports. More and more high-skilled work is being done by robots, satisfying CCP industrial-policy objectives. Production of robots, according to an analysis by the Center for Strategic and International Studies (CSIS), is up by a factor of 20 since 2012. A third of global robot sales are to the PRC.

From every direction, younger, educated urban dwellers are surrounded by hopelessness. They see only futility in the bargain earlier generations made, and they aren’t interested. The “lying flat” phenomenon has taken hold, which has been much reported on. Young people are checking out — they don’t want marriage, children, the cutthroat pursuit of fewer and fewer jobs that will not lead to prosperity and economic mobility. It is an explicit recognition of another social construct known as “996” — working from 9 a.m. to 9 p.m. for six days a week. Younger, educated city dwellers aren’t having it.

While not able to choose their leaders in the democratic sense, middle-class Chinese also are starting to vote with their feet. In an ominous sign for Xi and the party, illegal emigration from China is on the rise. According to Bloomberg reporting last December, illegal immigration into the U.S. from the PRC is up by more than 100 percent in recent years, with more than 60,000 crossing since late 2022. The CBS show 60 Minutes recently aired a segment in which new arrivals were interviewed as they streamed across the U.S. border. They explained that they had come for work and a sense of hope. There are many reasons for this. Declining economic prospects at home are chief on the list. The real-estate crash wiped out life savings for many. The demographic wasteland driven in part by the disastrous one-child policy, which now has been abandoned, has resulted in a shrinking population. Without a meaningful social safety net, a single child often has to support two aging parents and four grandparents. Single women lack prospects, with gainfully employed men not having urban Hukou benefits, so many are forgoing childbearing altogether. A man with a rural Hukou is denied many of the benefits of citizenry in urban areas. These men cannot send their kids to urban Hukou schools or use urban Hukou medical facilities and other services.

What is noteworthy is how so many of these appeared to come from China’s middle class. CBS’s real-time reporting shows well-dressed adults, families with children, young adults, and others, coming with rollaboard luggage, some of them coming through a gap in border fencing.

There is understandable concern that some of these migrants could be coming to engage in grey-zone activities, including economic and national-security espionage, and for related purposes. Some may well be affiliated with the illegal drug trade and facilitating the fentanyl crisis, which has roots in China. The U.S. government is right to be focused on that possibility and to take the necessary precautions to stem it. But it would be a significant misread of the situation to presume that most of the tens of thousands coming across are doing so for any reason other than that they have given up on China and know they would not be welcome back anyway. Quite obviously, many of these are ready to exchange the China Dream for the American Dream.

There is underway in China’s economy a seriously negative cycle that is contributing to the negative mindset. With the economic challenges at play, consumer spending has slowed and household savings are up sharply. According to the Peterson Institute for International Economics, household deposits in the first half of 2023 reached an all-time high, up 15 percent from the year prior. Even before the slowdown in spending, consumption as a percent of GDP in China typically lagged that of other countries. The resultant slowdown in consumer spending is contributing both to higher unemployment and to lower salaries, which is seeing double-digit percentage reductions particularly in urban middle-class skilled labor positions. This in turn feeds the declining consumer spending and the need to save more, and the cycle continues.

Political reasons, too, are at play in the middle-class mindset in China. The recent elections in Taiwan are a case in point. The outcome was seen as marginally favorable to the PRC because the more PRC-accommodating KMT won the most seats in the legislature while the independence-leaning DPP won the presidency only with a plurality of the vote, not a majority. But quite apart from that outcome, the real message is that Chinese middle-class citizens in Beijing, Shanghai, and other Shanghai, and other cities see successive multiparty elections multiparty elections in Taiwan, which the CCP claims as part of China, and can understand that Xi’s promise of rejuvenation in a one-party, authoritarian system is hopeless. Liberal democracy “is a clear affront to the CCP narrative,” according to Chong Ja Ian of the National University in Singapore, as quoted by Reuters.

Another ominous feature of the current situation on the mainland is how much economic activity has been given over to the informal sector. This comprises labor-intensive jobs including street vendors, household workers, delivery people — the gig economy, to a large degree. According to detailed analysis by CSIS in partnership with Stanford University’s Center on China’s Economy and Institutions, urban employment in the informal economy is now 60 percent, more than doubling in the past 20 years. As noted in the study, countries with a large informal economy also face a declining tax base, among other negative outcomes. With more robots taking skilled positions, urban workers are forced to take jobs below their qualifications, creating a sense of hopelessness, a loss of trust that their lives will become better over time. Overall, this has burst the perception that China is on the move toward becoming a developed economy; the middle class see their country moving backward, not forward. That observation is accompanied by an accelerating decline in living standards and, of course, economic growth and prosperity.

China is an authoritarian state, with totalitarian characteristics. Every aspect of society is monitored by the government. Information is closely controlled, and everything the West sees about life in China is what the government wants it to see. But the cracks and fissures are becoming too obvious to miss. The external middle-class migration is one obvious indicator that the regime is facing a serious threat to its ability to shape the narrative.

There should be no doubt that this will lead to even more desperate attempts by the party to maintain control and reverse these trends. The government is on a charm offensive. The CCP is out in full force to change the impressions of a nation in decline. Premier Li Qiang was back at Davos this year, not quoting Lincoln as Xi Jinping did when he was there earlier in his tenure but assuring Western leaders and business that China is open and welcomes investment and engagement. But times have changed. Since Xi declared his vision for the China Dream, the blinders are off. The U.S. and like-minded allies understand that China does not seek liberal, market-driven engagement. The mainland has absorbed Hong Kong, sadly, in every practical respect. That the CCP would willingly do likewise with Taiwan if the rest of the world acquiesced is clearly understood, and there is growing acceptance that allowing it would be a disaster.

The psychological abandonment of the China Dream by the educated urban middle class may not be the end of the regime. But to maintain their control, even absolute monarchs of the past depended on the consent of the nobles. Eventually, that control was ceded, and the nobles were given more agency over their lives — see, e.g., the Magna Carta in England. This is human nature. When people feel there are no prospects to improve their situation, they at least look for ways to vent their anger. In the PRC, there are no more levers for the government to pull to stimulate and control the economy, and the middle classes could begin to make other decisions to express frustration. The rapid lifting of “zero Covid” restrictions by the regime, in response to active and passive resistance to the government’s program, is the most obvious recent example. So are the middle-class departures from the country. The Chinese people are anxious because they know the bargain with the regime is crumbling. It is impossible to know where this will lead, and hopefully it will remain peaceful. But one thing is clear: Xi’s China Dream has become a nightmare for the very people on whom his party depends for its legitimacy.