A Study On Chinese Households Consumption Behavior Based On Habit Formation And Status Seeking

Since the1990s，the Chinese households savings rate has remained high because ofthe investment-oriented and export-oriented economic growth. Both the MPC and APCdata showed the residents’ consumption downtown. The deficient domestic demand hasbeen the important reason that troubled Chinese economic growth. Especially under thenew normal state, the central government has clearly realized that the mode of economicgrowth excessively depended on investment and export is difficult to continue. There’ sno getting away from the fact that the Chinese economy requires to reduce savings andincrease consumption in the future. The transformation of economic development moderequires to make the residents’ consumption to be the internal impetus driving economicgrowth and earnestly stimulate domestic demand especially the residents’ consumptiondemand.By now, the domestic and overseas scholars had discussed the cause of the highresidents’ savings rate in great detail from different angles with different approaches.And put forward pointedly policy recommendations. This paper believed that theresidents’ consumption behavior was closely related to the social and economicdevelopment of the society. The Chinese gradual economic reform began in1978hadnothing to recommend it all over the world. With the reform impeded and deepened, theChinese residents’ consumption behavior had shown vary characteristic feature frommany other economies. The principal deficit of domestic and foreign research was lackof comprehensive consideration of the characteristic feature of Chinese residents’consumption behavior in the rapid economic growth and economic transition, such ashabit formation, catch up with the Joneses, uncertainty, liquidity constraint and so on.So this article made comprehensive consideration of the characteristic feature ofChinese residents’ consumption behavior. Meanwhile, this article constructed the modelof modern theories of consumption complied with Chinese residents’ consumptionbehavior. Based on this model we explored the cause of the falling residents’consumption and high savings rate from the standpoint of habit formation and statusseeking. And attempted to offer an alternative explanation for the phenomenon of thehigh savings rate coexist with irrational vying craze at present.The first chapter of this article introduced the research background and meanings,ideas, method and content, and the major innovation for a specific description. The second chapter gave a brief introduction of development of the consumption theory, andmainly made a search of literature of habit formation theory and status seeking theoryabroad. At the same time, this article reviewed the literature on the high savings rate ofChinese residents. Finding the shortcomings through reviewing the present research laidthe foundation for the subsequent research.The third chapter to the fifth chapter are the core content of this article.The third chapter made a detailed analysis of the characteristic feature of Chineseresidents’ consumption behavior in the rapid economic growth and economic transition.And constructed the model of Chinese residents’ consumption theory to include all thecharacteristic features above. The theoretical model showed that the immediatehousehold consumption expenditure was the function of household wealth, disposableincome, former consumption expenditure, positional expenditure, variance of incomeand expenditure. The first three factors above had positive correlation with theimmediate household consumption expenditure, while the last three factors had thenegative influence and would compel households to decrease the immediateconsumption expenditure and become cautious. We found that：①Due to theconsumption inertia, the more former consumption expenditure was, i.e., the larger habitformation parameter() was, the smaller the marginal propensity to consume ofhousehold disposable income was. This was because habit formation would enforceconsumer decrease the immediate consumption expenditure and save more in order tomaintain long-term and stable consumption growth. Therefore, under the influence ofhabit formation, households had a higher propensity to save. So we could employ thehabit formation theory to explain the high savings rate phenomenon of Chinesehouseholds reasonably.②Habit formation reduced the influence of income andexpected expenditure uncertainty on household consumption expenditure, as theconsumption inertia increased, the influence of uncertainty on consumption becamelower. Meanwhile, habit formation reduced the marginal propensity to consume ofwealth, this indicated that habit formation enforced consumer accumulate more wealthin order to reduce the influence of uncertainty on consumption.③We found that themotivation of social status seeking enforced consumer tend to divert resources to thosegoods characteristic of external visibility. Consumer would choose to save for a rainyday in order to obtain the “positional goods”, thus crowded out the consumption. So status seeking gave us a different view of the high savings rate phenomenon of Chinesehouseholds. However, we found that habit formation reduced the crowding out effect ofexpected status expenditure on household consumption expenditure. This indicated thatreasonable consumer would not increase the expenditure of positional goods blindly inorder to seeking social status, but rather to consider diverting resources to expectedstatus expenditure to the maximum on the premise of maintain daily consumptionsteadily increased year by year.It can be said that habit formation and status seeking could explain the high savingsrate phenomenon of Chinese households from different angles. Meanwhile, the resultsof the empirical analysis with macro data shown that habit formation and status seekingdampened the immediate urban residents’household consumption.With micro data the forth chapter made an empirical analysis on the phenomenonof the high savings rate coexist with irrational vying craze. The phenomenon of the highsavings rate coexisted with irrational vying craze has close relationship with the motiveof status seeking that will drive people increase the positional expenditure characteristicof visibility in order to maintain or enhance the social status. The more this kind ofexpected positional expenditure, the more the degree of inhibition to the overallconsumption, that in turn compelled people increase the savings in order to obtain theability of catching up with the Joneses in social status. Frankly speaking, the purpose ofsaving was carrying out comparisons with others. Thus， this article provided areasonable explanation to the phenomenon of the high savings rate coexist withirrational vying craze to a certain extent.The results of the empirical analysis supported the analysis, through performing theempirical analysis for urban and rural residents exploring the CGSS family surveymicro data in the year2010, we found that as the representative of the positionalexpenditure the expected housing expenditure crowded out total household consumptionexpenditure, rural residents were affected more. For the urban and rural familiesgrouped by income, the positional expenditure gave more influence to the families withlow income.The fifth chapter explored the relationship between habit formation and statusseeking. The ways they affected consumption behavior differed, the former oneexplored the effect of past consumption on current consumption, while the latter oneexplored the effect of future consumption on current. Both would drive the consumer cautious, thus make consumer increase savings. Analyzing the connectionsand differences between habit formation and status seeking would contribute to explainthe reason for depressed consumption. By building the status seeking model and thehabit formation model, as well comparing the Euler equation of consumption, we foundthat both model made the consumer’s utility not completely derive from the immediateconsumption but rather for the “net consumption”. The “net consumption” of statusseeking model and habit formation model equaled to the part that deduced positionalexpenditure from total consumption and the part that deduced habit stock from totalconsumption, respectively. Positional expenditure and habit stock were the weightingsums of the last period net wealth and the last period consumption, both were affectedby the last period consumption and could destroy the time additive in the utility function.Thus, in the process of making the decision of utility maximization, the rationalconsumer would care about the immediate utility of current consumption as well as theinfluence on the future utility. Both model mentioned above would make the consumerbehavior bear the characteristics of “looking forward and backward”.In addition, we found that the Euler equation of “net consumption” in the twomodels mentioned above were consistent with the classical consumption model. Thetwo models could derive a lower intertemporal consumption elasticity of substitutionunder the condition that utility function remained unchanged so that could explain thephenomenon of excess smoothness and excess sensitivity in consumption.The sixth chapter introduced the policy recommendations. With the previousanalysis, this article put forward some reasonable policy recommendations from theaspect of improving the consumer financial market and the social security system,deepening the reform of income distribution and establishing long-term mechanism ofprevention and control of real estate market.