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Income Distribution and Household Consumption

China’s Economy:  Forecast for 2012. Income Distribution and Household Consumption. Yang Yao Director, CCER, Peking University NYSE, January 9, 2012. Declining share of household consumption in China. Source: China Statistical Yearbook, various years.

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Income Distribution and Household Consumption

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  1. China’s Economy:  Forecast for 2012 Income Distribution and Household Consumption Yang Yao Director, CCER, Peking University NYSE, January 9, 2012

  2. Declining share of household consumption in China Source: China Statistical Yearbook, various years.

  3. Composition of China’s national savings (as shares in GDP) Household Government Corporate Source: NBS, Flow of Funds Table, Various years.

  4. Conventional wisdom • Rising housing prices force people to save • New housing purchase accounts for about 46% of household savings. • But savings have still increased net of new housing purchase. • Lack of social security • People have to save for the future.

  5. Income distribution is highly skewed Per-capita income by quantiles 90-95 average per-capita income: 30,000 yuan 95-100 average per-capita income: 75,000 yuan. Source: CFPS 2011.

  6. As a result • Savings are mainly contributed by high-income groups; • They happen to be the people already having social security so the spread of social security will have little effect on their consumption; • Low-income groups have larger effects, but their share of consumption in the national total is small; • So the spread of social security will not help much boosting total consumption.

  7. Current social security coverage • Rural: health care and pension • Urban: health care, pension, and housing fund • Share of family members having a certain type of social security coverage is used as the measure for family coverage (pension and housing fund are only for adult members). Source: CFPS 2011.

  8. Effects of medical insurance by quantile: Rural Notes: Percentage of growth is the growth rate of consumption in each quantile assuming that the coverage increases from the current level to full coverage. Source: Yao and Zhou (2012).

  9. Effects of medical insurance by quantile: Urban Source: Yao and Zhou (2012).

  10. Effects of pension by quantile: Urban Source: Yao and Zhou (2012).

  11. Effects of all schemes by quantile: Urban Source: Yao and Zhou (2012).

  12. Final results Source: Yao and Zhou (2012).

  13. An alternative to lower China’s high saving rates • Increase government transfer including social security; • Reduce government spending on infrastructure and capital goods. Government versus household saving rates Source: Calculation based on The Financial Flows Table.

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