Understanding Chinese Consumption: The Impact of Hukou

20 Pages Posted: 30 Jan 2014

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Tongsan Wang

Chinese Academy of Social Sciences (CASS)

Yanqun Zhang

Chinese Academy of Social Sciences (CASS)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2013

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.

Keywords: Chinese private consumption, urbanization strategy, hukou system

JEL Classification: E21, O15, R23

Suggested Citation

Dreger, Christian and Wang, Tongsan and Zhang, Yanqun, Understanding Chinese Consumption: The Impact of Hukou (December 2013). DIW Berlin Discussion Paper No. 1341, Available at SSRN: https://ssrn.com/abstract=2387461 or http://dx.doi.org/10.2139/ssrn.2387461

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Tongsan Wang

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Yanqun Zhang

Chinese Academy of Social Sciences (CASS) ( email )

No.5 Jianguomennei Street
Beijing, 100732
China

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