Significant Reduction in the Final Consumption Rate and Residential Consumption Rate in Communist China

In 1978, the residential consumption rate was about 48% in Communist China, and this number had once exceeded 53% at the beginning of the Chinese Economic Reform. After 1983, the figure plummeted all way down to a level below pre-reform by 1992. In 2010, the residential consumption reached a historical low of 34.33%. Until 2020, the consumption rate remained low at about 38%, which is about 9.6 percentage points lower than that at the beginning of the reform. During the same period, the final consumption rate in Communist China fell from 61.9% in 1978 to 54.7% in 2020, a decline of 7.2 percentage points.While the percentage of residential consumption rate continues to fall, the percentage of government consumption rate in the country has increased significantly; the ratio of government consumption to residential consumption rose sharply from 27% in 1978 to 45% in 2020, a growth rate of 66%. In addition, according to the World Bank, in 2020, households and non-profit organizations’ consumption expenditure in Communist China accounted for 38.11% of the national GDP, ranking sixth from the bottom in the world, and is about 17 percentage points below the world average. Compared to India, it is about 20 percentage points lower, and the number is close to Zambia and Sudan.Analysts believe that there are four reasons for the low consumption rate in Communist China. First, individuals’ share in the distribution of wealth is too small. The per capita disposable income of the residents as a proportion of GDP is too low. Residents lack the ability to consume. Second, social security is so scarce that people cannot and dare not spend. Third, the government is corrupted and wasteful, crowding out the people’s consumption capacity. Last, the investment-driven economic model suppresses the people’s consumption ability.Presently, the CCP monopolizes land and kidnaps people with high real estate prices, while it exclusively owns banks and lowers interest rates to control the money flow. This development model can increase the economic growth rate short term, but it also causes a low consumption capacity long term and seriously unbalanced and unsustainable economic development. Furthermore, it has planted a huge land mine debt in the economy.

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Translator: MOS Education Team – Winter Li
Design&editor: Hbamboo

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