Understanding China's urban consumption patterns: new estimates and implications

Potential demand for consumer goods and services is enormous in China. Turning such potential into real effective demand will play a crucial role in sustaining China's future economic growth. Based on most recent consumption data of major categories of goods and services by consumers of different income groups, this study empirically evaluates the potential of the market for goods and services in China using the panel data of 18 provinces over the period 2002-2012. The results indicate that (1) compared to developed countries, Chinese urban residents have much potential for consuming goods including medical care, transportation and communication, education and entertainment; (2) the profile of the expenditure elasticity for necessities such as food change is hump-shaped. Residents in middle-income groups are more income-elastic than the low-and high-income groups; (3) expenditure elasticity of medical care decreases as income level rises, while the trends of transportation and communication, education and entertainment share a similar profile across income groups