The effect of household income on household consumption in China

Abstract: China’s economic growth undoubtedly led to an increase in the standard of living. Nevertheless, the price that China paid for this remarkably fast growth since its opening up in 1978 cannot be neglected. Due to a restructuring of the economic growth model, inequality occurred to a certain extent and has been strengthened by Chinese institutional features. The current growth model is considered as unsustainable and prone to external shocks – whereat it could not rely on the household consumption. The latter is extremely low by international standards, wherefore several factors are held responsible. The aim of this paper is to measure the effect of income and other Chinese characteristics that are claimed to be responsible for negatively affecting the household consumption. By using a comprehensive survey from 2011, these effects are measured directly at the household level. Having an understanding of the magnitude of these effects, especially about the importance of household income, certain solutions are discussed.