Research pick: Made in China - "The Chinese consumption myth"

New work in the International Journal of Economic Policy in Emerging Economies debunks the notion of ever-increasing consumption in China. The topic has been the subject of much debate wherein it had for many years that economic household consumption was consistently rising across the nation. However, the analysis by Kerry Liu of The China Studies Centre at the University of Sydney in Australia, looked at gross domestic product data, household survey data, and retail sales data from a new perspective and concludes that expenditure has been slowing since 2011.

There has been an inkling that consumers in China have been “downgrading” their spending, choosing lower prices rather than expensive high-quality goods. Whimsically, it has been reported that Chinese consumers have given up their avocados, switched back to the bicycle rather than taking a taxi ride, slinging their cocktails in favour of beer, and cancelling their gym memberships to exercise outdoors as their grandparents did. There have been some conflicting findings such as increasing numbers of vehicle purchases, particularly sport-utility vehicles (SUVs) and some other goods. There are four times as many cars sold in China each year as there are in the great gas-guzzling nation of the USA.

Liu’s findings point to an explanation as to why this might be:

"The main findings are that disposable income plays a significant role in consumption growth; that wealth effects from the real estate market [rising home rental costs] play a significant role in consumption upgrade; and that increasing rent has significantly contributed to the consumption downgrade."

"In view of the importance of consumption to the rebalancing of the Chinese economy, this study makes significant contributions to the debate on China’s economic policies,” says Liu. He adds that while some recent government policies have had a positive effect, more needs to be done. “China should improve its monetary policy by balancing the goals of meeting the needs of the real economy and not further inflating asset markets," he concludes.

Liu, K. (2022) ‘The Chinese consumption myth’, Int. J. Economic Policy in Emerging Economies, Vol. 15, No. 1, pp.103–120.