Squeezing Effects Of Consumer Credit On Consumption

Since the 1990s of last century, expansion of internal demand has become one of the important strategies of the Chinese Government in terms of the development of economy. Consumption, as one of the three incentives to pull the economy, is much expected in the expansion of internal demand. Under such circumstances, consumer credit was initiated and got rapidly developed with the support of the Government as a policy to improve the consumption environment of residents and expand the current consumption. For decades, it has been widely recognized that consumer credit has played an important role in such aspects as stimulation of consumption, pulling-up of internal demand, promotion of national economic growth in general, and increase of economic profits of financial institutions, In spite of this, there still exists an apparent "gap" between the role that consumer credit has actually played in the process of stimulating consumption and the role it should have done. The ultimate reason lies in the fact that the consumer credit has also strengthened the target deposit motivation of customers while weakening their precautionary deposit motivation, thus leading to the squeezing effect of consumer credit on consumption. Therefore, it is of great significance to have a proper understanding of such squeezing effect and its impact on the function of consumer credit in the reasonable use of such credit. To date, most domestic and international scholars have been focusing on the study of the positive incentive effect and few of them touch upon its negative aspects. Though few scholars have questioned the incentive effect of consumer credit and made some explorations in this field, these attempts are nothing but tentative and lack theoretical depth without empirical studies. The study in this field leaves much room for improvement. For this reason, this author makes an attempt to study this squeezing effect of consumer credit. The study consists of the following parts:The first part is a general survey of the present development of China consumer credit and its effect. In this part, the author makes a definition of connotation and denotation about the consumer credit according to the actual situation of China, and clearly points out that " consumer credit is a credit that commercial banks or other financial institutions provide for individual consumer or household to meet the consumption demand in a way of loan or credit overdraft." The author also suggests that individual housing credit and automobile credit fall into the category of consumer credit. Meantime, the author makes a brief analysis of the status quo of consumer credit and its problems on the basis of preliminary description and evaluation. After explaining the concept, objectivity and controllability of consumption squeezing effect, the author points out "with the increase of consumer credit, the structure of resident consumption expenditure will have to change itself with the adjustment of priority in the consumption credit, the scale and the growth speed of resident consumption expenditure being decreasing relatively." The author then contends that the squeezing effect does exist but it varies in degree in time and space and such effect also can be controlled and adjusted properly.The second part is a description of the present situation of the squeezing effect on consumption of consumer credit. By using such factors as the customer's ultimate consumption rate, marginal consumption tendency,and the contribution rate to economic growth and the change of economic pull initiated by the consumption demand, the author first makes a preliminary presupposition of the facts of squeezing effect on consumption in terms of the fact that the above indexes have apparently decreased under the circumstances of the ever-increasing scale of consumer credit, and then gives an explanation of the objectivity of the squeezing effect by analyzing the basic structure of consumer credit. With the materials available and by metrological methods, the author makes a regression analysis of the resident gross income and the total amount consumer credit increase in terms of the variables of social consumption goods retails and urban resident consumption expenditures, and comes to a conclusion that China's consumer credit has no considerable influence on the resident consumption expenditure and social consumption goods retails. By comparing the consumer credit of US, where the business in this field is relatively mature, with that of China, the author further testifies the objectivity and severity of the squeezing effect on consumption of consumer credit on the basis of the above analysis. The third part deals with how the squeezing effect on consumption arises from the consumer credit. After analyzing the relationship between consumption and deposit, the influence of consumer credit on the deposit behavior and motivation, the author, by analyzing the behavior of consumer's accumulating down payment and return of capital and payment of interest, describes how the direct squeezing effect on consumption comes from the consumer credit in terms of the incompleteness that consumer credit breaks through the boundary of consumer's liquidity and target deposit theory. By using consumption and substitute of investment as a cutting-point to analyze consumption and investment, the author explores the influence that the consumer credit increase exerts on the GDP and the income change of consumers. Finally the author expounds the formation of consumer credit for the indirect squeezing effect on consumption according to the relationship between income and consumption.The fourth part is about the measurements of squeezing effect. According to correlation between the controllability, measurability and target of consumer credit control, the author defines the spending squeezed by consumer credit the measurements of squeezing effect by analyzing the defects and conditions of different measurements, and eliminating time difference, then give out the mathematical expression for direct and indirect squeezing effect and total amount of squeezing effect.The fifth part analyzes the influencing factors of the squeezing effect of consumer credit on consumption. According to mathematical expression of the squeezing effect, with marginal analysis and elastic analysis, the author analyzes the effecting direction and degree of several factors on squeezing effect amount. These factors includes rate of consumer credit for sum of consumption supported by credit, time needed for consumer to accumulate the down payments, share of credit consumption goods in consumption plan, consumption tendency, income level, interest rates, loan tenure, loan interest rate, the ratio of income level to GDP, utilization ratio in fields of credit investment, and so on. Then by case-by-case analysis, find out the factors such as consumer credit scale, loan interest rates, ratio of costumer's income level to GDP, utilization ratio in fields of credit investment and so on,which have a positive affect on squeezing effect amount; while other factors such as ratio of credit line to sum of consumption supported by credit, time needed for consumer to accumulate the down payment, the ration of credit consumption goods in consumption plan, income level, consumption tendency, deadline of consumer credit, interest rates have a negative affect on squeezing effect amount. Finally, as a result, the author points out that current key factors influencing squeezing effect are consumption credit scale, ratio of credit consumption in consumption plan, ration of consumer credit to sum of consumption supported by credit, consumer income level, loan line and time needed for consumer to accumulate down payment.The sixth part analyzes the effect of squeezing effect on function of consumer credit. The author analyzes defects of traditional function of consumer credit and reasonable function of consumer credit, namely, " meeting reasonable economy growth, adjusting effectively consumption," and believe the target of consume credit should be "satisfying growth of consumption amount and consumption strictures optimization ". Based on this, the author analyzes the negative and positive effects of squeezing effect on reaching target of function of consumer credit. So based on current requirements of economy growth, in order to minimize the squeezing effect, improve the consumer credit policy, optimize the effect of consumer credit to consumption stimulating, we should improve structure of consumer credit and policy guidance of credit consumption; figure out the right deadline of consumption,minimize the squeezing effect due to paying back; guild the consumer tendency by the right loan condition; enlarge coverage rate of consumer credit, increase the percentage of credit consumption for total consumption; figure out reasonable loan line according to consumer's income level; supervise allocate efficiency of consumption credit and invest credit in different condition.The main contribution is:it first proposes conception of consumer credit's squeezing effect on consumption, explains the connotation of squeezing effect, defines the extension of squeezing effect, and based on the analysis of the present situation of consumer credit's squeezing consumption, analyzes the formation mechanism of squeezing effect, discusses the measurements standards of squeezing effect, analyzes effecting direction and degree of these factors on squeezing effect, and point out the key elements of how to adjust squeezing effect at present, and in terms of the actual requirements of current economy development, poses the policy suggestion of how to optimize consumer credit function. All of this deepens the study of consumer credit effect problem, to some degree, fills in the gap of relative study in the world.