The Research On The Middle-income Class And Household Consumption In China

China became an upper middle income country around 2010, and it was then her economic development pattern should embrace a new transformation. As the export-oriented strategy is threatened by western world’s economic crisis, with the investment-driven growth facing the restriction of environment and resources, becoming a consumption-oriented society makes a new choice. But the unbloomed household consumption and the not large enough middle-income group are obstacles. Such current situation shows, the current income distribution situation impedes most people getting better-off with China’s rapid economic development. The experiences of Japan, Korea and Brazil which escaped or was stuck in the middle-income trap also tells, a large middle-income class matters for a consumption-oriented economy. That’s why the relationship between middle-income class and household consumption worth the attention.The middle-income class effecting household consumption are not only through income distribution, in which more even means more aggregate average propensity to consume (APC); but also through consumption interdependence and economic growth. Specifically, the middle-income class are willing to pay a little extra for quality goods and differentiated products which can form new consumption pattern and low-income classes’ imitaion, also can fuels companies’ scale economy and innovation in product. The middle-income class value education, saving and claim for higher provision of public goods, which are also important for economic growth. Meanwhile, economic growth including related consumer industry development promotes consumption upgrading both from structure and volume. Here comes the questions. How many middle-income class are there in China? What are the particular ways of middle-income class affecting household consumption through income distribution, consumption interdependence between classes and economic growth? How to enhance China’s middle-income class’ some characters so as to enlarge household consumption? This paper is focused on those answers.Based on modern consumption theory, economic growth theory, and industrial development theory, this paper makes the empirical analysis from different views. There are seven chapters. Chapter 1 is introduction, and Chapter 2 are theoretical review. Chapter 3 reviews the related literature of defining middle-income class and gives its own definitions and thus their scale in China. Chapter 4 to 6 are the main context. Chapter 4 decomposes the effect of each income class on aggregate APC in urban China; chapter 5 tests the consumption functions of different urban income classes, focusing on their interdependence; Chapter 6 empirically analyzes the role of urban middle-income class plays in consumption upgrading. Chapter 7 is the conclusions and future topics.The main conclusions and innovative points of this paper are as follows.First, with the statistics analysis of urban households’ income and expenditure, the urban households are divided into four classes. Domestic studies usually combined the lower middle income households, middle income households and upper middle income households of urban household’s survey into the middle-income class, but ignored the similarities and differences of each class’s consumption. The classification method of this paper have such advantages. Four classes are easily recombined into two groups which are the usual subject of two class model, and there are also two classes in each group for comparison. And they can also be regrouped into the usual three classes; either take the shape of an olive or pyramid. The distinctiveness of the lowest income households and the highest income households are held too.Second, the empirical analysis of different income classes and aggregate APC reveals, the lower-middle class plays the biggest part in raising the aggregate APC, following by upper-middle class and low-income class, and high income class left behind. And further check finds each class’s relative income means more than relative consumption propensity to aggregate APC. Domestic studies always include Gini coefficient into consumption function and seldom decomposed the APC among income groups nor analyzes them econometrically. This paper thus makes up this deficiency to a certain extent.Third, the overall test of different urban classes’consumption functions finds something new. All the people can be divided into two groups, the poorer one and the richer one. The lower class in each group have a greater propensity to consume and the higher class are more affected by their consumption habit. All the classes except high income class are positively influenced by the consumption of their richer neighbors, and high income class is negatively influenced by its poorer neighbors. So there exists imitation effect and distinction effect separately. The existing researches either study each class separately or study one class trying different models, neglecting their interdependence. This paper hypothesizes the utility function of poor and rich groups apart and embeds the interdependence of consumption into class consumption functions. It also tests the four classes’ consumption functions using random coefficient model and obtains the coefficients of each class.Lastly, from the point of consumption upgrading, middle-income class play different roles in promoting consumption structure upgrading and consumption growth. From the comparison analysis of different income classes’consumption structure, it is found that transportation and communications expenditure, educational, cultural and recreation services expenditure are the main upgrading consumption expenditure. And the clothing expenditure can be depended upon in the short run for consumption upgrading; Based on the economic reality in China, this part gives the suggestions on those related upgrading consumer industrial development. The second part finds the middle-income class can only indirectly accelerate the consumption growth by more human capital investment. The innovation point of this chapter is using comparison analysis to specify the upgrading consumption expenditure and gives some policy suggestions on the relevant industrial development.The policy implications of this paper are that the middle-income class can raise the household consumption in more than one ways. It’s useful to increase the wages and salaries, and business income of lower-middle class to finally raise the aggregate APC. It’s suggested to improve the consumption environment of middle-income class and reduce the unnecessary isolation among different classes such as residential segregation which hinders the interdependence of consumption, especially the imitation effect of lower income class. It’s meaningful for government to enhance the development and transformation of textile and garment industry as the core industry of fashion industry so as to promote fashion consumption. Such as developing conference and exhibition industry, media industry and other service industry, and creating fashion industry park. Also it’s more important to increase governments’ budget of high school education and higher education for the sake of higher levels of human capital investment in order to maintain consumption growth.