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Understanding Chinese Consumption: The Impact of Hukou

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Author Info

  • Dreger, Christian

    ()
    (DIW Berlin)

  • Wang, Tongsan

    ()
    (Chinese Academy of Social Sciences)

  • Zhang, Yanqun

    ()
    (Chinese Academy of Social Sciences)

Abstract

The Chinese growth miracle was based on exports and investment in recent years. While strong output growth has been maintained even during the financial crisis, the imbalances within the country increased. To return to a more sustainable path of development, policies are directed to improve the role of private consumption. However, the institutional framework is an impediment to the transformation, as it weakens the incentives of households to consume. Besides a low degree of social security and highly regulated financial markets, we stress the relevance of the hukou system as the main driver for modest consumption, especially in recent years. After controlling for different income levels, the average propensity to consume is significantly lower for migrants, as their access to public services is limited. The downward pressure on consumption will increase in the future. The urbanization strategy of the government will likely raise the number of migrants with limited hukou rights, if it is not accompanied by respective reforms. Therefore, the transformation towards consumption driven growth is endangered without further reforms.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7819.

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Length: 19 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7819

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Keywords: Chinese private consumption; urbanization strategy; hukou system;

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  1. Wang, Xin & Wen, Yi, 2012. "Housing prices and the high Chinese saving rate puzzle," China Economic Review, Elsevier, vol. 23(2), pages 265-283.
  2. Riccardo Cristadoro & Daniela Marconi, 2011. "Households' savings in China," Temi di discussione (Economic working papers) 838, Bank of Italy, Economic Research and International Relations Area.
  3. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, January.
  4. Feng, Jin & He, Lixin & Sato, Hiroshi, 2009. "Public pension and household saving: Evidence from China," BOFIT Discussion Papers 2/2009, Bank of Finland, Institute for Economies in Transition.
  5. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511 - 564.
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