A Study Of The Problem Of Residents' Consumption Tendency In China

Increasing household consumption is critical to a stable，healthy and sustainabledevelopment of the national economy， and also to the improvement of people’s livesand welfare. With the slowing down of the current global economy and sluggishexternal demand， China’s economy is growing at a slower speed， the long-standingproblem of demand structural imbalance persists， consumption demand， especiallyhousehold consumption demand is severely insufficient. Household consumptionpropensity which is a reflection of consumer characteristics and an importantindicator of consumer preferences and willingness is an important perspective to thestudy of household consumption issues.Since the reform and opening up in1978， the consumption propensities ofChinese households have continued to decline. This paper starts from thisphenomenon， analyzes the structural upgrading of Chinese households’consumption， describes the internal and external factors restricting households’consumption structure upgrading， analyzes the main reasons causing this thisphenomenon from the perspectives of population， income， system reform andconsumption environment， clarifies the consequences caused， compares thepropensity to consume of Chinese households with that of American， Japanese andSouth African， and proposes some policy recommendations to adjust theconsumption propensities based on the above analysis.The decline of the final consumption rate was mainly caused by the decline ofhousehold consumption rate， and the decline of the household consumption rate is tosome extent caused by the decline in the household consumption propensity. Since thereform and opening up in1978， the consumption propensity of China’s urban andrural households has declined on the whole. The consumption propensity of urbanhouseholds has continuously declined since the1990s， and that of rural householdshas declined in fluctuation since the reform and opening up. The marginal propensityto consume of urban households has showed a weak downward trend in fluctuation，and that of rural households is more volatile than that of rural households.Howeverthere is no sign of the decline of rural households’ marginal propensity to consume.There can be found some common and different characteristics between urban and rural households’ propensities to consume. In addition， urban and rural households’propensities to consume have shown a counter-cyclical characteristic. The decline ofChinese households’ consumption propensity has happened under the background offast growing of household income. However， the propensity to consume of Chinesehouseholds has been so low even though that Chinese economy is still developing andhousehold income is still low.Since the reform and opening up in1978， China’s urban and rural households’consumption structure has upgraded，but there are still problems existing such as thatgap of urban and rural households’ consumption structure is widening and upgradingof consumption structure has slowed down. Factors affecting the upgrading ofconsumption structure include thrifty habit， demographic structure， income level，institutional change， the effective interest rate， credit constraints， product supplysituation and so on.The reasons why household consumption propensities have declined are asfollows. On the demographic side， the decline of birth and fertility rates， longer lifeexpectancy and mortality lead to a significant change in the age structure of thepopulation. The proportion of working-age population has rises， the childdependency ratio has decreased significantly， and the elderly dependency ratio hasincreased slightly， which all might lead to the declining of households’ propensity toconsume. On the income side， households’ income has increased rapidly， thetemporary income has gained a larger proportion， and the income gap of urban andrural households， which all lead to the the declining of households’ propensity toconsume. On the institutional side， a market-oriented reform of the economy，especially reforms in the fields of education， health care and social security since the1990s have increased household income rapidly， and also have led to increaseduncertainty in the household income and expenditure， and thus householdprecautionary savings increases. Apart from that， lacking of good consumptionenvironment is also the reason， including lacking of valid supply， the unsmoothcirculating system and the low development of financial system.The declining of household consumption propensity has provided sufficient fundfor China’s rapid economic growth. On the other side， it has also enhanced thedependence of economic growth on investment and export. In the demand-constrainedeconomy and the late stage of industrialization，considering the high dependence on foreign trade and the gradual loss of export competitiveness， this over-reliance oninvestment and exports，the growing path of depending too much on investment andexport can no longer persisit. The declining of consumption propensity is rationalchoices of households under the circumstances of fast income growth, the wideningincome gap and the imperfect social security，but it may lead to irrational collectiveresults which are reduced levels of income or the slowing down of income growth dueto the so called leak out of the mechanism of "savings-investment" and "savings-future consumption". For those reasons， households’ propensity to consume has tobe raised.In order to adjust urban and rural households’ propensities to consume， severalmeasures should be taken， which are improving the income distribution structure，improving the social security system and improving the consumption environment.Improving the income distribution structure includes raising the proportion ofhousehold income of national income and achieving a more balanced and fair incomestructure among households through taxes and transfer payments. Improving theincome distribution should focuses on promoting employment through supportingsmall and medium-sized enterprises and service industries. Improving social securitysystem includes raising the social security level and also expanding the coverage ofthe social security system. The integration of urban and rural social security should beachieved. The social security system fund should be increased， and at the same timethe proportion of personal financing should be reduced. Improving the consumptionenvironment includes providing more fine goods， encouraging innovation，smoothing the circulation of goods and improving financial support for householdconsumption. Through improving the income distribution structure， social securitysystem and the consumption environment households’ propensity to consume shouldbe raised， consumption desire be strengthened， household consumption beenlarged， and a stable， healthy and sustainable economy should be achieved.