Analysis on China’s Low Household Consumption

Since the economic reform of China in the late 70s, China is going through a rapid economic development, however, the proportion of consumption in the national economy is declining over the past 30years. In this paper, we first describe the current facts of China’s falling consumption rate. Then we propose the factors that lead to this decline and divide them to two categories. One category consists of structural factors, which corresponds to the declining proportion of the disposable income in GDP. The other category consists of behavior factors, and they describe how much the consumption rate is affected by consumer behavior. The research proposed in this paper is based on fundamental statistical data, using time series analysis on Chinese economy as well as international and inter-provincial panel-data analysis. To study on this problem, our research is comprised of two steps. In the first step, we focus on the change of China’s disposable income per GDP. In the second step, we study on the change of household consumption as percentage of disposable income.