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Understanding Chinese consumption: The impact of hukou

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

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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  1. Riccardo Cristadoro & Daniela Marconi, 2012. "Household savings in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 275-299, November.
  2. Xin Wang & Yi Wen, 2012. "Housing prices and the high Chinese saving rate puzzle," Working Papers 2012-038, Federal Reserve Bank of St. Louis.
  3. 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.
  4. Ma, Guonan & Yang, Dennis T., 2013. "China's High Saving Puzzle," IZA Discussion Papers 7223, Institute for the Study of Labor (IZA).
  5. Shang-Jin Wei & Xiaobo Zhang, 2009. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," NBER Working Papers 15093, National Bureau of Economic Research, Inc.
  6. Richard H. Steckel, 2008. "Heights and Human Welfare: Recent Developments and New Directions," NBER Working Papers 14536, National Bureau of Economic Research, Inc.
  7. Franklin Allen & Jun & Chenying Zhang & Mengxin Zhao, 2012. "China's Financial System: Opportunities and Challenges," NBER Chapters, in: Capitalizing China, pages 63-143 National Bureau of Economic Research, Inc.
  8. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, June.
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