How Does the Composition of Asset Portfolios Affect Household Consumption: Evidence from China Based on Micro Data

Hongyun Han,Fan Si

doi:10.3390/su12072946

Abstract

To pursue sustainable and balanced economic development, it is urgent to transform the economic development models from investment-driven to consumption-led. Factors underlying the consumption pattern of households in China, especially the rising wealth and its impact, deserve special attention from both policy makers and academic researchers. This paper aims to investigate how asset portfolios, consisting of housing asset, financial asset, production asset, durable asset, and vehicle asset affect consumption behavior based on household panel data. It is proved that the composition of asset portfolios significantly affects consumption of households. Asset levels and asset prices have positive influences on household consumption. Furthermore, various household assets have different impacts on household consumption patterns, divided into living type, developing type, and enjoying type of consumption, especially there is a larger wealth effect on developing type of consumption. More importantly, it shows a pattern of urban and rural dual economic structure. The disparity is even higher from a wealth perspective. The availability to wealth is of great importance. Therefore, the findings suggest inclusive financial reforms to create conditions for promoting property income and facilitating financial capacity of households, which is necessary for policy formation of Chinese economic transition.

Highlights

Since the past 40 years of Reform and Opening-up, China has made tremendous achievements in economy and social development, with a continuing GDP growth rate around approximate 10%
For the fixed-effects estimate, we find a negative and insignificant marginal propensities to consume (MPCs) for total asset of -0.001 in specification (3) without controlling price changes
When distinguishing among various households’ wealth, for rural households, it shows that production asset has a larger and significant MPC of 0.011 for living type of consumption because agricultural and business production behavior such as self-employment and small handicraft business are important for them to make a living, and it is shown in Table 1 that production asset accounts for the second largest component of rural family wealth

Summary

Introduction

Since the past 40 years of Reform and Opening-up, China has made tremendous achievements in economy and social development, with a continuing GDP growth rate around approximate 10%. The number of rural people living in poverty dropped from 770 million in 1978 to 30.46 million at the end of 2017, and the incidence of poverty dropped from 97.5% to 3.1% [1]. The Chinese government has spared no effort to eliminate poverty, many households still experience extreme poverty [2]. Economic growth in the price of the rising income inequality, widening urban-rural disparity, and environmental pollution [3,4,5,6] has raised concerns on the sustainability of government-led, investment-driven growth pattern. Compared to other developed countries, for example, a level of 68.4% in United States in 2017, 66.1% in United Kingdom, 55.7% in European Union, China’s household consumption in GDP is at a relatively low level

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