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Explaining China's Low Consumption: The Neglected Role of Household Income

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Author Info
Li Cui
Jahangir Aziz
Abstract

The Chinese government has recently focused on the need to increase consumption to rebalance the economy. A widely held view is that despite China's remarkably high growth, the share of consumption in total expenditure has been low and declining due to high and rising saving rate of Chinese households as uncertainty over provision of pensions, and healthcare and education costs have increased since the mid-1990s. This paper finds that the rise in saving rate has been a minor factor. Much larger has been the role of the declining share of household income in national income, which has occurred across-the-board in wages, investment income, and government transfers. The paper finds that financial sector weaknesses, by restricting firms' access to bank financing for working capital, have played quantitatively a major role in keeping wage and investment income shares low and on a declining trend.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/181.

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Length: 36 pages
Date of creation: 26 Jul 2007
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Handle: RePEc:imf:imfwpa:07/181

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Keywords: Working Paper ; China; People's Republic of ; Consumption ; Income ; Economic growth ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January. [Downloadable!] (restricted)
  8. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  9. Eswar S. Prasad & Raghuram G. Rajan, 2006. "Modernizing China's Growth Paradigm," American Economic Review, American Economic Association, vol. 96(2), pages 331-336, May. [Downloadable!]
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  10. Kuijs, Louis, 2005. "Investment and saving in China," Policy Research Working Paper Series 3633, The World Bank. [Downloadable!]
  11. Brown, J David & Earle, John S & Lup, Dana, 2005. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 33-70, October.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rod Tyers & Ling Huang, . "Combating China'S Export Contraction: Fiscal Expansion Or Accelerated Industrial Reform?," CAMA Working Papers 2009-02, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
    Other versions:
  2. Rod Tyers, 2008. "Competition Policy, Corporate Saving and China's Current Account Surplus," ANUCBE School of Economics Working Papers 2008-496, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
    Other versions:
  3. Rod Tyers & Iain Bain, 2008. "American And European Financial Shocks: Implications For Chinese Economic Performance," CAMA Working Papers 2008-08, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
    Other versions:
  4. C Niranjan Rao, 2008. "The Role of Intellectual Property Rights in Information and Communication Technologies," Working Papers id:1742, esocialsciences.com. [Downloadable!]
  5. Jahangir Aziz, 2008. "Deconstructing China’s and India’s Growth: The Role of Financial Policies," Working Papers id:1714, esocialsciences.com. [Downloadable!]
  6. Jahangir Aziz, 2008. "Real and Financial Sector Linkages in China and India," IMF Working Papers 08/95, International Monetary Fund. [Downloadable!]
  7. Robert C. Feenstra & Chang Hong, 2007. "China's Exports and Employment," NBER Working Papers 13552, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Arslan Razmi, 2008. "Is the Chinese Investment- and Export-Led Growth Model Sustainable? Some Rising Concerns," Working Papers 2008-09, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  9. Jahangir Aziz, . "Deconstructing China's and India's Growth: the Role of Financial Policies," Indian Council for Research on International Economic Relations, New Delhi Working Papers 224, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
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