Research On The Relationship Between China's Rural Social Security System And The Expansion Of Domestic Demand

Social security system is always known as the safety valve and economicstabilizer which plays an important role in stabilizing the economicdevelopment and safeguarding people's basic life. At present, the socialsecurity system in China is experiencing a serious unbalanced developmentbetween urban and rural areas. In urban areas, an almost perfected socialsecurity system has been being established, but in the vast rural areas, becauseof the backward economic development and the lack of security conscious, thebuilding of rural social security system appears much slower. For thousands ofyears, farmers in China are relying on two dominant security patterns--familysecurity and land security, both of which are the most original and fragile one.Along with the deepening of the reform and opening, market economic systemis generally being established in China. At the same time, the traditionalsecurity patterns in rural areas find it harder and harder to meet the needs ofthe development of market economies. As a result of the lack of modern socialsecurity, farmers have to increase the saving rate to prevent their futureconsumptions from uncertainties, which means a decrease of farmers'currentconsumptions. For Chinese total domestic demand, the vast rural marketmakes great sense. If farmers'marginal propensity to consume shows adecreasing trend, the whole domestic consumption will be greatly weakened.In March 2008, Premier Wen Jiabao pointed out again that"We willcontinue to boost domestic demand, adjust the balance of investment andconsumption, and promote the shift from the pattern of economic growth thatrelies mainly on investment and exports to one that relies on a balancedcombination of consumption, investment and exports.""Boosting domesticdemand"was designated as the focus of China's economy development strategies once again. And how to implement the strategy better becomes thekey to which needs us to pay much more attention.This thesis mainly discusses the relationship between the building of socialsecurity system in rural areas and boosting domestic demand from theperspective of perfecting the rural social security system. The main viewpointof the thesis is that considering the current economic situation in China,perfecting the institution of social security in rural areas would improve ruralresidents'expectations, raise their consumption confidence, and active ruralmarkets obviously. Rural social security system will play a unique role inboosting domestic demand.The whole thesis consists of five parts:The first part introduces the question being discussed which shows thetheoretical and practical significance of the thesis, and then introduces theresearches done by the scholars at home and abroad. From the theoretical side,the selection of social security system, which must influence every aspects ofeconomic development for its tendency, essentially is the selection betweenlaissez faire and government intervention in economic policies; from thepractical side, it is of great significance that the establishment and perfectionof rural social security system will solve livelihood problems of rural residentsas well as tough problems of declining rural consumption market andineffective domestic demand in economic development fundamentally.The second part which describes whole quo status of domestic demand andquo status of rural consumption analyzes the problems existed and the causesof the problems. Domestic demand has characteristics of low consumptionaggregation, over-loaded resident consumption, higher and higher saving rateand restrained current consumption as well as fairly weak rural consumption inanti-risk. The lack of social security system which causes increasing ruralconsumption load comparatively with bleak expectation and strengtheningrural savings and weakening propensity to consume is one of the important problems.The third part, which reveals existing problems with an analysis of thecauses of the problems, introduces quo status in domestic rural social securitysystem. Being in a particular period when traditional family security pattern isaffected seriously as well as modern social security pattern just beingestablished, domestic rural social security system, on the one hand, has weakpoints of low level and small coverage and single form because of low level ofeconomic development, on the other hand, under-invested rural social securitysystem affects the development largely because of long existing dual economicstructure and indifference to farmer rights.The forth part, which firstly analyzes the income effect social securitysystem has on consumption from a theoretical point of view carefully, gives anempirical analysis according to the latest data in China. After thecomprehension of the quo status of China and the precautionary saving theory,we find the proper theory based on which we can explain how the rural socialsecurity system affects farmers'consumption. At present, the immature socialsecurity system in China resulted from the economic transition deterioratedconsumers'expectations on uncertainties, which caused the problem of overprecautionary savings, and weakened the economic growth. Through asystematical analysis, we abstract two main factors--economic growth andsocial security, which dominate the affection of consumption, into ourtheoretical model. The model we use is an integration of Diamond Model andFeldstein Model. After adding the social security factor to the intertemporalconsumption model, we can get a conclusion that given some extent ofeconomic growth rate, the introduction of social security system is expected toincrease farmers'current consumption. After the theoretical analysis, we madean empirical analysis using the statistics released by National Bureau ofStatistics from 1989 to 2006. On the one hand, we proved the positiverelationship between the social security expenditure and the current consumption. On the other hand, the empirical analysis also shows thateconomic growth has greater effect on residents'consumption than socialsecurity do. Based on the analysis, we concluded that the social securitysystem do have a positive effect on the increase of current consumption thoughthe effect is not dominant, but the keys to resolve the problems existing indomestic demand are still economic development and increasing residents'income.The fifth part, which is also the last sector of the whole thesis, gives theconclusions and some related policies. The establishment and perfection ofrural social security system do make great sense to the boosting of domesticdemand, but not a determinate one. We should establish a modern rural socialsecurity system based on a stably increasing economic growth rate which canmeet rural residents'real needs better. Meanwhile, the government shouldknow its responsibility in the process of building rural social security systemmuch clearly, and strive to resolve the problems of raising funds andimproving the efficiency of funds management, ensuring the abundance ofsocial security funds which could protect people's basic life. Besides that, wealso should perfect the constructions of related laws which could guaranteefarmers'basic rights. Additionally, we should take all sorts of possiblemeasures to increase farmers'income and to improve the consumptionenvironment in rural areas, ensuring that rural social security system can givefull play to promote consumption.