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Understanding Chinese consumption: The impact of hukou

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  • Dreger, Christian
  • Wang, Tongsan
  • Zhang, Yanqun

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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Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 343.

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Date of creation: 2013
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Handle: RePEc:zbw:euvwdp:343

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

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  1. 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, University of Chicago Press, vol. 119(3), pages 511 - 564.
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  3. Xin Wang & Yi Wen, 2012. "Housing prices and the high Chinese saving rate puzzle," Working Papers, Federal Reserve Bank of St. Louis 2012-038, Federal Reserve Bank of St. Louis.
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  6. Ma, Guonan & Yang, Dennis T., 2013. "China's High Saving Puzzle," IZA Discussion Papers 7223, Institute for the Study of Labor (IZA).
  7. Riccardo Cristadoro & Daniela Marconi, 2011. "Households' savings in China," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 838, Bank of Italy, Economic Research and International Relations Area.
  8. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262640643, December.
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