The Insufficiency Of Consumption Demand In ChIna

Bruce
Ian Henry
Academic Writing
15th April, 2008

The Insufficiency of Consumption Demand in China
Consumption demand in developed countries is often regarded as an important contribution to the long-term economic growth. In the current economic environment, China faces double pressure from both domestic and foreign economic recession. On the one hand, the subprime crisis happened in the middle of last year has made the economy of the United States hover on the brink of recession and the external economic cooling trend will undoubtedly affect the exports of China since its exports contribute a lot to the GDP. On the other hand, China's domestic inflation has threatened China's social stability. To resolve the current difficulties, stimulating domestic consumption demand is a very necessary and urgent measure, considered by many economists.
Although some people argue that there lacks evidence to call the present problem a domestic consumption demand insufficiency. However, both theory and practical macroeconomic data prove that the current consumption demand is insufficient.
Theoretically, the Keynesian theory expounds that aggregate demand includes consumption demand and investment demand. In particular, the consumption demand is determined by the tendency of consumption which in a certain period of time is fixed or even decreasing; resulting in the income growth outpaces consumption demand.(Macro, Mankiw, p147)Consequently, without constant stimulation, the consumption demand is easy to fall short of expectation.
Statistically, macroeconomic data in the total retail sales of social consumables and its growth rate reveal the trend that most consumers are more unwilling to consume in recent years. Since 2004, the growth rate of the total retail sales of social consumables has remained around 13%, instead of further acceleration, which gives a warning from supply. As shown below: in Figure 1


Figure 1
Given the already existed problem, exploring the...