News Center



Home News Center News

Prof. Zhao Bo: How to Effectively Shore up Household Consumption?

Aug 23-2023   



In the first half of 2023, total consumption contributed about 77.2% of China’s GDP. By examining the effects of income distribution and wealth gap, Prof. Zhao sought to answer if such high-level consumption can be maintained in the mid- to long term. He shared his findings and thoughts in China Economic Observer, a hallmark event of the NSD, on July 18.

 

Total consumption consists of outlays by both households and the government. Prof. Zhao noted that the former was as high as 54% of GDP in the 1980s but steadily slid to around 36% in 2008, before rebounding and fluctuating up to 2010. It was then depressed by the pandemic and went back downward. A similar trend can be observed with regard to the ratio of household spending to total consumption, from 80% down to 68% before stabilizing at around 70%.

 

The declining share of household spending could be attributed to a similar trend in household income, said Prof. Zhao. Of the total disposable income of all domestic departments, household disposable income saw its share drop from about 70% in 1992 to less than 60% in 2008, and rebound afterwards. Meanwhile, government disposable income didn’t decline when averaged out over the 30 years, while corporate disposable income went up by 11%.

 

Income inequality among residents also accounted for falling consumption, said Prof. Zhao. China’s Gini Coefficient dropped between 2008 to 2010, a trend accompanied by higher consumption ratio. The opposite was true of the rest of the years when rising Gini Coefficient went parallel to a shrinking consumption ratio. Prof. Zhao pointed out that the wider the wealth gap, the lower the average per capita consumption, and the higher the savings rate. In this sense, common prosperity is conducive for boosting consumption.

 

Zooming in, Prof. Zhao revealed that the income gap between urban and rural residents had been narrowing down since 2010, contributing to a overall decrease in Gini Coefficient. However, in cities and villages alike, top earners had been pulling further ahead of the lowest-income groups. Since 2015, rural savings rate has remained relatively stable, but the urban one has recorded an evident uptick.

 

To revitalize consumption, Prof. Zhao advised sorting out the income distribution among households, enterprises, and the government. The first hurdle to jump concerns whether to store more wealth in the households or the government. Another part of the solution lies in addressing the widening income gap among residents, which would involve tax reform, transfer payment, and social security upgrading. For instance, the wealth inequality brought about by real estate needs to be adjusted through housing taxes. As education policy has direct and intimate bearings on mid- to long-term income and consumption, Prof. Zhao suggested carrying out education reform in a more scientific manner.

Prof. Zhao Bo: How to Effectively Shore up Household Consumption?

Aug 23-2023   



In the first half of 2023, total consumption contributed about 77.2% of China’s GDP. By examining the effects of income distribution and wealth gap, Prof. Zhao sought to answer if such high-level consumption can be maintained in the mid- to long term. He shared his findings and thoughts in China Economic Observer, a hallmark event of the NSD, on July 18.

 

Total consumption consists of outlays by both households and the government. Prof. Zhao noted that the former was as high as 54% of GDP in the 1980s but steadily slid to around 36% in 2008, before rebounding and fluctuating up to 2010. It was then depressed by the pandemic and went back downward. A similar trend can be observed with regard to the ratio of household spending to total consumption, from 80% down to 68% before stabilizing at around 70%.

 

The declining share of household spending could be attributed to a similar trend in household income, said Prof. Zhao. Of the total disposable income of all domestic departments, household disposable income saw its share drop from about 70% in 1992 to less than 60% in 2008, and rebound afterwards. Meanwhile, government disposable income didn’t decline when averaged out over the 30 years, while corporate disposable income went up by 11%.

 

Income inequality among residents also accounted for falling consumption, said Prof. Zhao. China’s Gini Coefficient dropped between 2008 to 2010, a trend accompanied by higher consumption ratio. The opposite was true of the rest of the years when rising Gini Coefficient went parallel to a shrinking consumption ratio. Prof. Zhao pointed out that the wider the wealth gap, the lower the average per capita consumption, and the higher the savings rate. In this sense, common prosperity is conducive for boosting consumption.

 

Zooming in, Prof. Zhao revealed that the income gap between urban and rural residents had been narrowing down since 2010, contributing to a overall decrease in Gini Coefficient. However, in cities and villages alike, top earners had been pulling further ahead of the lowest-income groups. Since 2015, rural savings rate has remained relatively stable, but the urban one has recorded an evident uptick.

 

To revitalize consumption, Prof. Zhao advised sorting out the income distribution among households, enterprises, and the government. The first hurdle to jump concerns whether to store more wealth in the households or the government. Another part of the solution lies in addressing the widening income gap among residents, which would involve tax reform, transfer payment, and social security upgrading. For instance, the wealth inequality brought about by real estate needs to be adjusted through housing taxes. As education policy has direct and intimate bearings on mid- to long-term income and consumption, Prof. Zhao suggested carrying out education reform in a more scientific manner.