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The Analysis on Chinese Resident’s Consumption Level Based on the Impact of Income Gap

Author: ZhouZuo
Tutor: WangYaLi
School: Dongbei University of Finance
Course: National Economics
Keywords: economic growth low levels of consumption constraint factor income distribution gap policy recommendations
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 248
Quote: 1
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Abstract

More than three decades since the reform and opening-up, Chinese economic development has made eye-catching achievements in the world. However, the impact of consumer demand in the national economy showed a gradual weakening trend, which not only in the region of propensity to consume, but also in the region of consumption structure, which has significant imbalance between urban and rural areas. These problems existed in consumer demand, violated to the ultimate goal of economic growth, which aimed to meet the growing material and cultural needs of the whole community, deviated from the goal of common prosperity of socialist society, which impact on social stability and harmony seriously.Where is the problem? Based on the consumption function theory, the text gives empirical analysis on the intrinsic link between consumption and income distribution gap. Although consumption function aims to study the relationship between the total consumption and total income, it reveals the relationship that income impacts on consumption, shows the internal mechanism that consumer changes absolutely depend on the income distribution gap. Unfortunately, it does not reflect the structural relationship between consumption and income. So, is it because China’s income growth runs as a reduced state that the contribution to economic growth of residents’ per consumption runs as a reduced state? Data proved that the answer is no; then, does the contribution to economic growth of residents’ per consumption runs as a reduced state has no relationship with income? Classical theories suggest that the answer is no, either. So, how do the economics basic principles that income influences consumption explain China’s current phenomenon of continued weakening of the consumption?This empirical study concluded that Chinese income gap is large and continues to expand, are the basic reasons that leading to the continued degradation of China’s consumer. The phenomenon of low levels of consumption which resulted from differences between consumption structures has profound internal relations with the differential in income distribution. In recent years, infrastructure investment and export are the main driving forces of China’s sustained rapid economic growth. By comparison, the force of consumer is very weak. Among the troika drove that can stimulate economic growth, the driving force imbalanced seriously, which will constraint healthy growth of China’s economic. The role consumption played on economic growth is crucial. Maintaining consistent economic growth lies in the harmony growth between residents’income and consumption. According to the conclusions of this study, the inference is to be drawn:China’s new economic growth point should rely on the growth in household consumption as a main approach, which must rely on the rationalization of income distribution.However, one of the present main problems in Chinese economy and social is that the residents’ income has relatively large gap in several levels. Income distribution and insufficient consumption ability have become the main factors to limit our economic growth. Unreasonable income gap reduced the residents’ consumption level greatly and bruised the residents’ enthusiasm of consumption. If no adjustments taken for the problem of this income gap, it will not only hinder the improvement of living conditions, but also influence the further healthy, stable and sustainable development of Chinese national economy.Meanwhile, our country has a typical dual economic structure, and the gap between urban and rural income has always been an important constraining factor in further economic growth. If this reality was ignored, the consumer level in rural will suppress and drag down that of the total.Hence, this study puts the residents’ consumption level as the object, and extracts the main factors-the domestic income gap from a number of factors which affect the level of consumption. Define income gap in the gap between urban and rural income, and put the gap as the explanatory variable, using which to analyze its impact on China’s consumption level.In comparison with our rapid economic development, the consumer demand is insufficient. How to reasonably resolve the problem becomes the key whether China will keep the long-term, healthy and steady economic growth. Practice has proved that consumption, which is an ultimate driving force factor of speeding up economic growth, has and will have a further effect on the growing economic development. According to this empirical analysis, large income distribution gap has become an important constraint factor of low resident’s consumer tendency, hindering improvement of consumer level. The consumer level in China, influenced not only by income distribution gap, but also by the inter inertia of consumption. Hence, this paper makes policy recommendations on rationally (?) readjusting income distribution structure rationalizing the relations between income and distribution, narrowing income gaps, expanding people’s consumption level, optimizing the consumption structure, and guiding residents’ consumer.

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