BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Understanding Chinese consumption: The impact of hukou
(), Tongsan Wang
() and Yanqun Zhang
Abstract: Capital investment and exports have driven China’s
remarkable economic growth for decades, but recent trends have put pressure
on the government to move to a more consumption-driven model of growth.
Unfortunately, China’s institutional framework does little at the moment to
spur household consumption. While the country’s weak social security setup
and highly regulated financial markets are routinely cited as disincentives
to private consumption, the role of the hukou household registration system
in depressing consumption gets less attention. Controlling for income
levels on datasets from 2002 and 2007, we show the average propensity to
consume is significantly lower for internal migrants to cities. Official
figures suggest that China in 2013 had about 260 million internal migrants.
These individuals are often separated from their families for long periods
and denied access to public services in the cities where they work. The
government’s current urbanization strategy calls for increasing migrant
populations in cities, which, in the absence of hukou reform, is likely to
further dampen consumption.
Keywords: Chinese private consumption; urbanization strategy; hukou system; (follow links to similar papers)
JEL-Codes: E21; O15; R23; (follow links to similar papers)
19 pages, February 17, 2014
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