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Understanding Chinese Consumption: The Impact of Hukou

19 Pages Posted: 19 Mar 2014  

Christian Dreger

German Institute for Economic Research (DIW Berlin); European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Tongsan Wang

Chinese Academy of Social Sciences (CASS)

Yanqun Zhang

Chinese Academy of Social Sciences (CASS)

Multiple version iconThere are 3 versions of this paper

Date Written: February 17, 2014

Abstract

Capital investment and exports have driven China’s remarkable economic growth for decades, but recent trends have put pressure on the government to move to a more consumption-driven model of growth. Unfortunately, China’s institutional framework does little at the moment to spur household consumption. While the country’s weak social security setup and highly regulated financial markets are routinely cited as disincentives to private consumption, the role of the hukou household registration system in depressing consumption gets less attention. Controlling for income levels on datasets from 2002 and 2007, we show the average propensity to consume is significantly lower for internal migrants to cities. Official figures suggest that China in 2013 had about 260 million internal migrants. These individuals are often separated from their families for long periods and denied access to public services in the cities where they work. The government’s current urbanization strategy calls for increasing migrant populations in cities, which, in the absence of hukou reform, is likely to further dampen consumption.

Keywords: Chinese private consumption, urbanization strategy, hukou system

JEL Classification: E21, O15, R23

Suggested Citation

Dreger, Christian and Wang, Tongsan and Zhang, Yanqun, Understanding Chinese Consumption: The Impact of Hukou (February 17, 2014). BOFIT Discussion Paper No. 7/2014. Available at SSRN: https://ssrn.com/abstract=2410216 or http://dx.doi.org/10.2139/ssrn.2410216

Christian Dreger (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Tongsan Wang

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Yanqun Zhang

Chinese Academy of Social Sciences (CASS) ( email )

No.5 Jianguomennei Street
Beijing, 100732
China

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