Private Consumption Model in China

31
DOI: 10.20542/0131-2227-2024-68-12-49-58
EDN: EKOIQF
Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs of the Russian Federation, 76, Vernadskogo Prosp., Moscow, 119454, Russian Federation.
 

Received 15.07.2024. Revised 11.09.2024. Accepted 02.10.2024.

Abstract. The paper aims to analyze quantitatively the households’ final consumption expenditure model in China within the framework of the “dual circulation” policy and stimulation of domestic demand, which underlies the country’s 14th Five-Year Plan for 2021–2025. Model identification bases on assessing the impact of six determinants (current income, permanent income, wages, earnings of employees, domestic credit to private sector, and price level) on the households’ final consumption expenditure growth and its contribution to the country’s economic growth. The Granger causality test underlies the methodological approach of the research. The analysis found that the consumption pattern of Chinese households can be defined as driven equally by current income, debt and price levels. To achieve the maximum consumption effect over 3–4 years, the following conditions must be ensured in the country: expanding access to credit should be followed by a general increase in per capita income, accompanied by lowering prices. Income policy has the dual effect of stimulating the country’s overall economic growth through both the demand channel and the investment and/or export components of growth. At the same time, the income elasticity of households’ final consumption expenditure remains low: the population’s continued high propensity to save is constraining the growth of current consumption and China’s transition to a consumption-led economic growth model as well. An alarming trend is the significant mutual influence of debt accumulation and the growth of households’ final consumption expenditure. Policies aimed at stimulating private consumption may contribute to worsening China’s debt problems in the medium and long term.

Keywords: China, economic growth, households’ final consumption expenditure, domestic demand, income level, credit growth, price level, double circulation policy, Granger causality test


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For citation:
Arapova E. Private Consumption Model in China. World Eñonomy and International Relations, 2024, vol. 68, no. 12, pp. 49-58. https://doi.org/10.20542/0131-2227-2024-68-12-49-58 EDN: EKOIQF



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