The Causations Of Declining Final Consumption Rate In China Since 1981

It is the essential reasons for, and the formation mechanism of, the ongoing declining of Chinese final consumption rate that this paper takes as the research object. It tries to make a comprehensive, detailed and in-depth analysis to figure out the reasons which caused the continued declining of Chinese final consumption rate. It further explores the mechanism of the effect of correlation factors to scientifically explain the phenomenon and put forward suggestions to reverse the phenomenon.Investment and net export are two important indirect factors of final consumption rate. This paper analyzes their influence. First of all, it studies the reasons for the imbalance between investment and consumption from the perspective of investment(investment rate relatively high while final consumption rate too low). This imbalance can largely explained from three aspects:the market leading and government leading mechanism in high accumulation, the circulation mechanism in high accumulation and negative effect mechanism of excessive investment and sluggish domestic demand because of government macro-control behaviors, among which the first reason has the strongest explanatory power. Then, this paper studies the influence of net export on final consumption rate. It argues that import can increase the supply of factors and promote technological progress, so as to promote economic growth and stimulate consumption. Exports greatly relaxed the constraints of domestic demand for investment and production. Excess output can be absorbed by foreign markets, so as to maintain a high rate of investment, which makes final consumption rate staying at a low level.This paper also analyzes the influence of three important direct factors on final consumption rate, including income distribution, population structure and social security. It carefully studies the effect of income distribution. Because of the law of diminishing marginal propensity to consume, the imbalance of income distribution will inhibit the increment of consumption. Since 1981 the imbalance of income distribution strictly exists as the Gini coefficient rise continuously, which is one of the important factors affecting the continued declining of final consumption rate. Then, it discusses how the age structure, sex structure and urban-rural structure of population influence final consumption rate. It’s found that the sharp drop of birth rate and youth dependency ratio due to long-term implementation of one child policy affects the rise of Chinese final consumption rateto some extend.Onthe other hand, the increasing old-age dependency rate under population aging trends and "old before getting rich" situation will lead to rise of future final consumption rate. Increasing urban population proportion will promote consumption demand. The accumulation rate is higher when migrant peasants work in cities rather than in rural areas, thus affecting final consumption rate to decline in the overall level. And then it continues to research the impact of social security on final consumption rate. In general, social security is helpful to reduce the uncertainty of the future lives of residents, which will stimulate consumption. However, current Chinese social security is still in low level and low coverage(in most of the years within study period, but improves quickly in recent years), and the social security funds are badly managed. So the social security just stimulates consumption very limitedly.This paper finally applies empirical analysis to study the influence of above factors on the final consumption rate respectively. It uses methods of VAR, impulse response function and the Granger causality test to quantitatively analyze the impact of investment and net exports on final consumption rate in 1981-2013. It’s found that final consumption rate is sustainable. It means that current level of consumption affects next period’s consumption, and investment has a stimulating effect on consumption. Export demand apparently substitutes domestic demand. Besides, it r the impact of income distribution, population structure and the social security level on final consumption rate by using the panel data of 31 provinces and applying dynamic panel data model. The conclusions generally support the theoretic analysis above. In addition, it comparatively analyzes the conclusion of the eastern, central and western regions after the study of the whole country.