Research On Suitable Consumption Rate Of China

Consumption rate represents the proportion of final consumption expenditure in the aggregate demand, whose level reflects the overall situation of economy, and guides the macroeconomic policy. The indicator corresponding with consumption rate that indicates aggregate demand expenditure structure is capital formation rate, which has alternative relationship with consumption rate in large domestic-oriented economy. The consumption rate of China show downward trend since reform and opening up, while the capital formation rate rose continually. The stimulation of consumption demand has been weakened progressively, and the stimulation of investment demand has strengthened. The stability, sustainability and effectiveness of Chinese economic growth are declining.Consumption rate consists of consumption rate of government (CRG) and consumption rate of households (CRH) , which is always devided into consumption rate of rural households (CRR) and consumption rate of urban households (CRU) in urban-rural dual economic structure. The decreasing of CRH, especially CRR, is mainly performance of consumption rate of China, which reflects the growth rate of consumption demand of households is slow. The reason that leading the decreasing of consumption rate of China consists of internal causes and external causes. The internal causes are slow growth of households’income, expending of the income gap between urban households and rural households, declining of households’propensity to consume, increasing of uncertain expectation, and the lack of consumption of government in the field of livelihood, etc. The external cause is the crowding-out effect on the consumption rate and consumption demand that caused by acceleration of industrialization, lower interest rate, and decreasing of investment efficiency, etc.The model of suitable consumption rate that targets to macro objects such as economic growth, full employment, and economic stability, provides theoretical basis to the research of suitable consumption rate of China. According to exogenous variables in current stage of economy development of China, we can estimate the rage of suitable consumption rate of 2010 is [54.21%,65.15%]. The actual consumption rate of 2010 is significantly lower than the minimum of suitable level.There are six ways to solve the problem of lower consumption rate of China. First, increase the income of households by promoting the structure of national income distribution. Second, improve households’propensity to consume by reduce the income gap between urban households and rural households. Third, let uncertain expectation of households down by strengthen the social security system. Fourth, adjust the structure of government expenditure, in order to promote consumption demand of households. Fifth, restrain the fast growth of private investment by reforming the interest rates mechanism. Sixth, adjust the structure of governmet investment, and increase government investment efficiency.