Why Has China’s Final Consumption Rate Declined Since 1978? Causes and Implications

Along with the rapid economic growth since 1978, there has been a remarkable trend in China, i.e. the steady decline of the share of final consumption expenditure in GDP that has made China one of economies with a low consumption rate in the world for a long time period. This phenomenon is concerned by economists since it is important for economic policies given the key role of consumption in the economic growth. This paper is to explore causes about decline in China’s final consumption rate since the economic reform. Evidence implies four causes: decrease of consumption propensity, adjustment of national income distribution structure, reform of urban housing system and slow growth of rural income.