Abstract

Consumption rate is one of the key issues arousing the attention of experts in both academic and political field in China. Against the background of favorable policies of expanding domestic demand，the consumption rate in China has been declining instead of increasing since 2000. But during the same period，the trade surplus has been increasing with the decline of consumption rate. Consequently，Chinese economic development shows the pattern of “high growth，high investment，high export and low consumption”. The decline of consumption rate leads to the increasingly weakening of the basis of domestic demand for economic growth；while the lasting increase in trade surplus leads to more international trade frictions，greater pressure on the appreciation of RMB，more reliance on foreign trade and less capable of resisting foreign shocks. The international financial crises beginning in 2008 highlighted the plight of Chinese economy rooting in its domestic demand and foreign trade. Against this background，it is of great theoretical and practical significance to research on the issue of consumption rate in China. The main contents and conclusions of this paper are as follows.

Firstly，this paper analyzes the views about consumption rate in China. Currently，the dominant viewpoint is consumption rate in China is too low，even seriously low. Accordingly，the government adopts such policy recommendations as expanding domestic demand to improve consumption rate，but the effects of economic policy are not as desirable as expected in actual implementations. Based on past literatures about consumption rate，this paper puts forward the view that the core of the issue of consumption rate is not whether it is high or low but its wavy declining trend according to the analysis of the status quo and changing patterns of consumption rate in China. Low consumption rate is the result of long wavy decline，which is the symptom of the issue not the problem itself.

Secondly，this paper proposes the criteria for judging optimal consumption rate or whether consumption rate is high or low. Scholars holding the view that consumption rate in China is low usually prove their viewpoints using the method of comparative study，lacking in unity，specific judging standards. Based on Cobb-Douglas equation，this paper deduces a formula for calculating consumption rate. Empirical analysis shows that the model can interpret the changes of consumption rate in China to a great degree，and using this model can predict the size and changing direction of consumption rate in a short period. Therefore，the theoretical value calculated by this model can be used as a standard to judge whether the actual consumption rate is high or low in China.

Thirdly，this paper explores the determination of reasonable range of consumption rate. Previous scholars studying the question usually used empirical study，and they deduced that the range should be 60% to 65%. Based on the theoretical model of consumption rate determination deduced before，this paper proposed that it would be desirable to determine reasonable range of consumption rate according to the tolerance level of inhabitants to inflation rate. Empirical evidence from this model shows that the estimated value of this theoretical model is very close to the optimal investment rate （40%） and consumption rate （60%） as well as the reasonable range estimated by domestic scholars using empirical studies. Thus，this paper confirmed theoretically previous scholars’ empirical judgment，showing that the model can be used to measure and forecast the reasonable range of consumption rate （or investment rate）.

Fourthly，this paper analyzes the reasons why consumption rate in China keeps a wavy declining trend. Scholars holding the view that consumption rate in China is low concluded that low private consumption rate was the main reason for overall low consumption rate in China through analyzing the composition of consumption rate；moreover，they concluded that low consumption rate among rural residents was the main reason for the low private consumption rate through further analysis of the composition of private consumption rate. Different from previous studies and based on the premise that the issue of consumption rate in China is mainly shown in its wavy declining trend，this paper draws the first level conclusion through detailed analysis：the wavy declining of private consumption rate is the main reason for the wavy decline of consumption rate，which can explain 99.7% of the wavy decline of consumption rate from 1978 to 2008；in addition，the wavy decline of rural consumption rate is the main reason for the wavy decline of private consumption rate，which can explain 159% of the wavy decline of private consumption rate during the same period. Furthermore，this paper draws the second level conclusion through analysis of the different causes for the decline of private consumption rate：considering the structural changes of the population in both urban and rural areas，the decline of per capita consumption rate of urban and rural residents is the driving force for the decline of private consumption rate. The structural changes of the population in urban and rural areas are the main reason for the decline of rural consumption rate，but it is the restraining factor for the decline of urban consumption rate. In addition，this paper draws the third level conclusion through analysis of the reasons causing the decline of per capita consumption rate of urban and rural residents：the wavy declining of per capita disposable income ratio of urban and rural residents is the dominant driving force for the wavy declining of private consumption rate in both urban and rural areas. Before 1995 the high average propensity to consume （APC） of urban residents formed a restraining factor for the decline of per capita consumption rate of urban residents；while after 1995 the decline of APC of urban residents became another driving force for the decline of per capita consumption rate of urban residents. The APC of rural residents had changed little during the same period. Hence it had little influence on the decline of consumption rate of rural residents. Finally，this paper draws the fourth level conclusion by analyzing the reasons causing the wavy decline of per capita disposable income ratio and APC of urban residents：current income distribution system unfavorable to common labors and households is the main reason for the decline of per capita disposable income ratio of urban and rural residents. With the explicit definition of establishing socialist market economic system through reform in 1994，many problems emerged with a series of great transformations in social and economic systems，such as irregular market transactions，high transaction costs，imperfect consumption environment，poor consumption security，unprotected consumers’ rights as well as poor public services rendered by governments，resulting in the lasting decline of consumption willingness of urban residents，the increase of precautionary savings as well as the sharp decline of APC.

Fifthly，this paper recommends some measures to expand domestic demand so as to improve Chinese consumption rate. Based on the conclusions draw from the deduction of the consumption rate determination model and from the analysis of the reasons causing the wavy declining of consumption rate，this paper puts forward following policy recommendations：formulate and implement a national technology innovation and development strategy to promote an overall improvement of production technologies；adhere to the “people-oriented” development strategy and reduce the pace of economic development accordingly；accelerate economic restructuring and gradually reduce net exports；accelerate the reform of income distribution system so as to increase the proportion of disposable income and improve people’s consumption ability；perfect social security system and improve the consumption environment to improve residents’ consumption willingness；increase the net income of rural residents to improve rural people’s consumption ability；accelerate the transformation of government functions，improve government’s service awareness and service levels，improve government’s spending willingness，and increase investments in public services so as to reduce residents’ spending pressures. This paper tries to change the wavy declining trend of consumption rate by addressing the root causes，and provide fundamental solutions to such problems as expanding domestic demand，promoting consumption and improving consumption rate in China.