Departmental Bulletin Paper An Empirical Analysis of Consumer Behaviors in Chinese Urban Areas

Lu, Wenliang  ,  Lau, Sim Yee  ,  Wenliang, Lu  ,  Sim Yee, Lau

Using the model specification of Deaton-Muelbauer (1980), this empirical study analyzes two data sets, viz., a time series aggregated data on Chinese urban household disposable income and consumption expenditure on eight major items from 1992 to 2012 and a cross-sectional data collected from a questionnaire survey conducted in Beijing, Shanghai, Tianjin and Qingdao (BSTQ) with regard to isposable income and consumption expenditure in eight major items.The analytical results of marginal propensity to consume suggest that in order to stimulate domestic private consumption in China, policy interventions in higher income groups, preferably on disposable income less than 67,000RMB are desirable. From the findings, it is interesting to note that notwithstanding that the provision of education is free from primary school to junior high school, the respondents from BSTQ with disposable income higher than 67,000RMB seem to emphasize on the quality of education of their children. In addition, the findings also suggest that policy for the provision of affordable housing in Chinese urban areas will need to focus on disposable income level of less than 67,000RMB. From the empirical evidences, the disposable income level of 26,000-48, 000RMB is not high enough to pay for adequate attention on medical and health services. Although the provision in medical and health services in China but it is a luxury item for the people in lower income group.Regarding the compensated own-price elasticity of demand in lower income groups, the results showthat demand of “ food, ” “ clothing ” and “ medical ” is influenced positively by the changes in prices. It is worth noting that the rise in disposable income has a negative influence on “housing” for disposable income below 67,000RMB but it has a positive influenced for higher disposable income that is above 92,000RMB. Similarly, the demand for “medical” and “education and culture” also positively correlated to the rise of disposable income particularly for disposable income above 92,000RMB. Cross-price elasticity of demand of one expenditure item with another changes accordingly with the level of disposable income. A pair of net complementary goods changes to a pair of net substitute goods (e. g., “clothing” and “housing,” “housing” and “food”). Additionally this shift is also apparent with the rise of disposable income (e. g., “medical” and “housing”). The reverse, viz., the shift from a pair of net substitute goods to a pair of net complementary goods also occur (e. g., “housing” and “education”, “education” and “food”) when the disposable income increased.

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