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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.

Suggested Citation

  • Dreger, Christian & Wang, Tongsan & Zhang, Yanqun, 2013. "Understanding Chinese consumption: The impact of hukou," Discussion Papers 343, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    • Handle: RePEc:zbw:euvwdp:343
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    Cited by:

    1. Chen, Xiaofen, 2018. "Why do migrant households consume so little?," China Economic Review, Elsevier, vol. 49(C), pages 197-209.
    2. Cheng, Zhiming, 2021. "Education and consumption: Evidence from migrants in Chinese cities," Journal of Business Research, Elsevier, vol. 127(C), pages 206-215.
    3. Bradlow, Benjamin H., 2018. "Embeddedness and Cohesion: Regimes of Urban Public Goods Distribution," SocArXiv h39jw, Center for Open Science.
    4. Ma, Wanglin & Vatsa, Puneet & Zheng, Hongyun & Rahut, Dil Bahadur, 2022. "Nonfarm employment and consumption diversification in rural China," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 582-598.
    5. Li, Chao & Lao, Wenyu & Li, Xiang & Zhang, Yuhan, 2024. "Automated workforce, financial precarities and family consumption: The importance of demand-side policies under the background of automation applications," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1287-1308.
    6. Dreger, Christian & Zhang, Yanqun, 2017. "The Hukou Impact on the Chinese Wage Structure," IZA Discussion Papers 10720, Institute of Labor Economics (IZA).
    7. Ekaterina Arapova, 2018. "Determinants Of Household Final Consumption Expenditures In Asian Countries: A Panel Model, 1991-2015," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 18(1), pages 121-140.
    8. Lin, Carl & van der Meulen Rodgers, Yana, 2018. "Parental Migration Decisions and Child Health Outcomes: Evidence from China," IZA Discussion Papers 11986, Institute of Labor Economics (IZA).
    9. Elliott, Robert J.R. & Sun, Puyang & Zhu, Tong, 2017. "The direct and indirect effect of urbanization on energy intensity: A province-level study for China," Energy, Elsevier, vol. 123(C), pages 677-692.
    10. Yanxu Li & Zhenfa Xie & Bo Li & Muhammad Mohiuddin, 2022. "The Impacts of In Situ Urbanization on Housing, Mobility and Employment of Local Residents in China," Sustainability, MDPI, vol. 14(15), pages 1-21, July.
    11. Yang, Ziyan, 2020. "Contract design in China’s rural land rental market: Contractual flexibility and rental payments," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 15-43.
    12. repec:osf:socarx:h39jw_v1 is not listed on IDEAS
    13. Dreger, Christian & Zhang, Yanqun, 2014. "Does the economic integration of China affect growth and inflation in industrial countries?," Economic Modelling, Elsevier, vol. 38(C), pages 184-189.
    14. Jingwen Tan & Shixi Kang, 2021. "Finding the Instrumental Variables of Household Registration: A discussion of the impact of China's household registration system on the citizenship of the migrant population," Papers 2112.07268, arXiv.org, revised Dec 2021.
    15. Robert J R Elliott & Puyang Sun & Tong Zhu, 2014. "Urbanization and Energy Intensity: A Province-level Study for China," Discussion Papers 14-05, Department of Economics, University of Birmingham.
    16. Lei Niu & Lulu Yuan & Zhongmin Ding & Yifu Zhao, 2023. "How Do Support Pressure and Urban Housing Purchase Affect the Homecoming Decisions of Rural Migrant Workers? Evidence from Rural China," Agriculture, MDPI, vol. 13(8), pages 1-28, July.
    17. Yuke He & Geng Niu & Guochang Zhao, 2022. "Parents' pension eligibility and migrant consumption in urban China: Evidence from a quasi‐experiment," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 2317-2335, November.

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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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