Boost Consumption Demand: Tasks, Mechanisms and Policies

By Ren Xingzhou, Institute of Market Economy of DRC

Foreword

Since the launch of reform and opening-up, China's total consumption demand has showed a trend of constant and rapid growth. However, due to the impact of China's former economic growth pattern, among the so-called "three-horse troika" pulling economic development, consumption growth and its contribution to GDP growth are relatively low compared with investment and export growth. In recent years, although consumption growth has been lifted and become the most stable motivating factor for economic development, the overall consumption growth still faces many problems. The root cause lies in some deep-seated problems besetting consumption growth, especially the long-accumulated problems relating to systems and mechanisms.

From the outset of the Twelfth Five-Year Plan till 2020 is a critical period to build China into a moderately prosperous society at a higher level in all respects. In this period, China's consumption demand growth faces new circumstances and contexts which pose new requirements for boosting consumption. For instance, change in the economic growth pattern demands optimizing the consumption demand structure; increased pressure on resources and the environment plus the need to cope with climate change requires forming a sustainable consumption pattern as soon as possible; because of great pressure on China's external demand during the international financial crisis and the "post-financial crisis" period, economic development shows increased dependence on domestic demand; gradual improvement of the policy system will create a favorable institutional environment for consumption demand growth; speedy economic development and reform of the income distribution system will be conducive to raising the level of consumption; continued upgrade in the demand structure will stimulate fast growth in the level of residents' consumption; the number of population and change in its structure will have a significant impact on consumption demand; the rapid advancement of urbanization will further raise the overall level of consumption; optimizing the structure of government expenditures will contribute to the expansion of consumption demand; and the rapid development of the modern consumption pattern also helps expand consumption demand.

Over the next 10 years and even a longer period, the basic approach towards boosting China's consumption is to follow the guidance of the scientific outlook on development and the central government's overall strategic planning on building a moderately prosperous society in all respects, and efforts should be made in the following aspects: taking the expansion of consumption demand especially residents' consumption demand as the central task; concentrating on boosting consumption capability and propensity, promoting upgrade of the consumption structure, advancing innovation in the consumption pattern, and improving the consumption environment; gathering motivation for reform of fiscal and taxation systems, reform of the income distribution system, transformation in government functions, and reform of institutions and mechanisms in such key areas as pension, medical care, and education; and focusing efforts on upgraded traditional consumption goods, emerging consumption goods, the service consumption sector, the rural consumption market, the new consumption pattern, and consumption-related infrastructure. Such policy options aim to speed up balanced economic growth driven by consumption, investment, and export, thus promoting substantive transformation in the economic growth pattern.

Under the new circumstances of socio-economic development, further improving systems and mechanisms to boost consumption demand presses for a series of solutions relating to institutional arrangements such as policy measures which include the following aspects: promoting reform of the income distribution system, gradually improving the taxation system conducive to consumption demand growth, increasing the proportion and optimizing the structure of government spending on public services, continuously improving the system that fosters the development of small and medium-sized enterprises, high-tech industries, and the service sector, as well as raising the proportion of middle-income earners. Meantime, efforts should be made to accelerate transformation in government functions so as to establish a consumption policy system encompassing both short-term and long-term policy measures.

The Institute of Market Economy of the Development Research Center of the State Council has long attached importance to research on consumption-related issues. In particular, research finding have been made in studies concerning upgrade of residents' consumption structure, development trends of residents' consumption, and consumption policies. Since 2008, in the process of dealing with the international financial crisis, China has issued an array of consumption polices, some of which are policy-based innovations. At the same time, some deep-rooted problems regarding consumption systems and mechanisms also loomed up. Therefore, we made special analysis on problems affecting China's consumption systems and mechanisms. During the forthcoming Twelfth Five-Year Plan period, boosting China's consumption demand faces new conditions and tasks, and consumption trends are also undergoing new changes. Thus, we have conducted researches focusing on issues of expanding consumption in China, and meantime analyzed relevant data concerning consumption policies, the relationship between consumption and investment, and the individual consumption pattern collected from foreign countries. We have compiled all the research findings in this book in the hope of attracting more public concern to researches on consumption-related issues, and we sincerely wish our readers will not spare their comments. We will make further endeavour to make researches on issues related to consumption in China with a sense of mission and responsibility so as to do our bit towards research on consumption policies.

Ren Xingzhou

October 18, 2010

Contents

This book contains three sections.

The Policy Section "Research on Mechanisms and Policies to Boost Consumption Demand under New Circumstances" contains five chapters.

Chapter One: "Changes and Status Quo of China's Consumption Demand and Evaluation on its Contribution to Economic Growth" consists of three parts: 1. "Basic situation of changes in consumption demand since the launch of reform and opening-up"; 2. "Problems with China's consumption demand since the launch of reform and opening-up": and 3. "Analysis of the contribution to economic growth by changes in consumption demand since the launch of reform and opening-up".

Chapter Two: "Analysis of the Main Problems Relating to Systems and Mechanisms Affecting China's Consumption Demand Growth".

Chapter Three: "Analysis of the Background and Trends of China's Consumption Demand Growth under New Circumstances".

Chapter Four: "Basic Approach towards and Major Tasks of Expanding China's Consumption Demand under New Circumstances" consists of two parts: 1. "Basic thinking" and 2. "Major tasks".

Chapter Five: "Primary Ways and Policy Options to Improve Systems and Mechanisms for Expanding Consumption Demand" consists of two parts: 1. "Primary ways to improve systems and mechanisms for expanding consumption demand" and 2. "Policy options to expand consumption demand".

The Specific Section "Research on Boosting Consumption" contains ten chapters.

Chapter One: "Analysis of the Rationale for Consumption as the Ultimate Demand that Stimulates Economic Growth" consists of three parts: 1. "Decisive factors for economic growth and its relationship with consumption": 2. "Influential mechanism of consumption on economic growth": and 3. "Understanding of the rationale for consumption as a drive for economic growth".

Chapter Two: "Research on the Investment-to-Consumption Ratio during China's Industrialization" consists of three parts: 1. "Laws of changes in the investment-to-consumption ratio during industrialization" 2. "Changing trends, contributing factors, and the reasonable range of China's investment-to-consumption ratio"; and 3. "Policy options to improve China's investment-to-consumption ratio".

Chapter Three: "Changes in the Consumption of China's Urban and Rural Residents' since the Launch of Reform and Opening-up" consists of five parts: 1. "Fundamental transition from adequate food and clothing to overall moderate prosperity"; 2. "The quality of life and content of consumption of urban and rural residents have made a qualitative leap"; 3. "The impetus and guarantee for overall moderate prosperity is essential change in development strategies and institutional transformation"; 4. "Living conditions transform from low-level standards to higher-level standards in all respects"; and 5. "Achieving moderate prosperity requires deepened institutional reform and policy adjustment".

Chapter Four: "Impact of China's Income Distribution on Boosting Economic Growth and Measures to Be Taken" consists of four parts: 1. "Status quo and prominent problems of China's income distribution structure at the present stage"; 2. "Main causes for the problem of China's income distribution"; 3. "Impact of income distribution on consumption growth"; and 4. "Measures to improve the income distribution system and promote China's consumption growth".

Chapter Five: "Research on the Relation between China's Urbanization and Residents' Consumption Growth" consists of three parts： 1. "Relation between urbanization and residents' consumption growth and how the former impacts the latter"；2. "Analysis of mutual benefits between China's urbanization and residents' consumption growth"； and 3. "Policy Options to enhance the coordination between China's urbanization and consumption growth".

Chapter Six: "Research on Upgrade in China's Consumption Structure under New Circumstances" consists of three parts ： 1. "Basic characteristics of the consumption of China's urban and rural residents"；2. "Basic trends of upgrade in China's consumption structure during the Twelfth Five-Year Plan period"； and 3. "Policy options to promote upgrade in the consumption structure".

Chapter Seven: "Research and Thoughts on Residents' Consumption Pattern in China" consists of three parts： 1. "Changes in the consumption pattern of China's residents and its impact on economic development"； 2. "Thoughts on the formation of a reasonable consumption pattern of China's residents"； and 3. "Actively guide transformation in the consumption pattern of China's residents".

Chapter Eight: "Research on Special Efforts to Expand China's Rural Consumption Market" consists of four parts：1. "Status quo and characteristics of China's rural consumption market"； 2."Analysis of the problems and constraints of currently expanding China's rural consumption"；3. "Active explorations to expand China's rural consumption market"； and 4. "Policy options to strive to expand China's rural consumption".

Chapter Nine: "Adjustment and Improvement of China's Consumption Policy in the New Period" consists of four parts：1. "Change in China's consumption stages and adjustment of consumption policies"；2. "Main content of the consumption policy system in current China"； 3. "Direction and potential of the development of China's consumption market",；and 4. "Adjustment and improvement of China's consumption policy in the new period".

Chapter Ten: "Adjustment and Evaluation of China's Consumption Policy during the International Financial Crisis" consists of three parts：1. "The key role of boosting consumption demand in dealing with the international financial crisis and domestic economic downturn"；2. "Adjustment of China's consumption policy in dealing with the crisis"； and 3. "Evaluation on the effects of the policy to deal with the crisis and expand consumption".

The Enlightenment Section "Foreign Consumption Policies and Experience" contains three chapters.

Chapter One: "Changing Trends of the Investment-to-Consumption Ratio during Industrialization in Different Types of Countries" consists of three parts：1. "Changing trends of the investment-to-consumption ratio in developed countries"； 2. "Changing trends of the investment-to-consumption ratio in newly industrialized countries"； and 3. "Changing trends of the investment-to-consumption ratio in developing countries".

Chapter Two: "The Consumption Pattern of Residents in US and Japan and Its Enlightenments to China" has one part： "The consumption pattern of residents in US and Japan and its impact on economic growth".

Chapter Three: "Policies, Experience, and Enlightenments of Boosting Consumption of Other Countries" consists of three parts： 1. "Comparison in consumption demand between China and other countries"；2. "Experience of major countries' policy to boost consumption"； and 3. "Experience of some countries' policy to boost consumption and relevant enlightenments to China".