The academic status and theoretical constitution of consumption
Consumption is a holy power. Consumption is endowed with exalted standing because it creates everything in human society.
Consumption is the eternal topic in economics, which is always emphasized by economic theorists and national functional departments and decision-makers. The mechanism of consumption indicates that the circulation of consumption is vital for the entire circulation and effects of the national economy.
Consumption is the beginning and end of the economic cycle, as well as the sum of all human activities. Three important consumption practices act on human beings to enable the human brain to generate awareness, thinking method, and consumption awareness. It is not only a conclusion of academic theories but also a product of theory and practice; this is a new revolutionary systematic theory of consumption.
Section 1 Scientific implications for human consumption
The concept ‘human consumption’ is different from the previous concept of ‘consumption’. In traditional economics, consumption is considered just as a link in the social production process, but the concept of ‘human consumption’ considers consumption as a complex process of the whole of economic and social life. The overall task of the book is to interpret and research this process and explain the general law of economic and social development.
Human consumption is the whole process of human consumption, which can be divided into human consumption in a broad sense and human consumption in a narrow sense in concept. In a narrow sense it is the concept that consumers get ever-increasing material, spiritual, and cultural satisfaction while acquiring products, service, and experience; or it can be said that consumption is a behavior that consumers freely get at the cost of currency, referring to consumption during the processes of life and labor.
In a broad sense human consumption includes social consumption – social public consumption – mainly including social management, national defense, national security, research, education, health, environmental protection, social assistance, public welfare, international trade, and so on. In traditional studies, consumption in the broad sense is usually considered a secondary distribution of economic benefits; the research of consumption in the broad sense exists only in the field of distribution; in this book, the research of consumption is placed within the consumption field for study and the law of national macro control can only be obtained through this study method.
During the practice process of human beings, new consumption desires and cognition are continuously created as well as new consumption demand and products. Consumption is most directly dependent on the existence and sophistication level of human demand, and the whole process of consumption can be predicated according to the nature and diversity of requirements. In turn, only through consumption can people’s requirements be satisfied; the more abundant the consumption content is, the more possible that the people’s demand can be further developed. If the development of demand is the motivation and purpose of consumption, then consumption is the necessary prerequisite to maintain and continuously develop the demand.
In the area of commodity production, as a result of the existence of self-sufficient economic sectors, living consumption is closely related to labor consumption, and there is no obvious separation between the two. However, in the developed area of commodity production, living consumption is clearly separated from labor consumption and the separation is clear and strict.
Certainly, human consumption also comprises spiritual and cultural consumption. Traditional economics pays less attention to the spiritual and cultural consumption of human beings and does not consider it an economic variable in study; in contrast, this book regards spiritual and cultural consumption as an important economic variable. Scientific research and production, living consumption and social consumption include spiritual and cultural consumption, which is given as important a status as human material consumption. Although in the backward area of commodity consumption people’s spiritual and cultural consumption does not play an important role in their economic life, along with social progress and economic development, and the improvement of people’s consumption capacity, the amount of spiritual and cultural consumption continuously increases in quality and quantity. This point has been proved both in developed countries and in the ever-changing consumption structure in developed areas in China. Therefore, spiritual and cultural consumption will play more and more important roles in human consumption structure and in a growing proportion; if the spiritual and cultural consumption is neglected in study, it means the neglect of a series of economic phenomena related to spiritual and cultural consumption, including the economic phenomena involving labor, production and consumption pattern as well as social economic effects related to spiritual and cultural consumption. To identify spiritual and cultural consumption as the important aspect of human consumption is one of the features of this book.
The nature of human consumption activities is different from that of animal consumption activities. As Marx said in Capital, the nature of human consumption is a kind of ‘subjective, and most essential nature of human beings’ (1867), and this kind of subjectivity is formed through the labor process and social networks. Animal consumption is directly related to animals’ activities, being a kind of instinctive and life activities. The consumption activities of human beings separate production and consumption in time and space, and it is that kind of separation that displays sociality of consumption and subjectivity of human beings and their social attributes. In this sense, human consumption becomes an integral part of the substantial existence of human beings.
Section 2 The academic status of consumption
Driven by the instinctive consumption of metabolism, mankind obtains materials from the natural world, creates new consumption desires and cognition, and then creates new materials, spiritual, and cultural products; this is regarded as the consumption process.
After a comprehensive analysis is conducted on the works of western classical and modern economics, it is easy to determine that western mainstream economics has always been centered on production and put consumption at a subordinate position. The system of neo-classic economics has serious defects on the issue of consumption; it lacks an abstract consumption concept in the production theory of value, the concept of consumption increment in the production theory of capital, and active consumption concept in production teleology. The production-centered trend appeared many times during the industrialization process and led to economic crises. In the transition from industrial economy to information economy, the customary overlook of consumption value has become the serious defect of western mainstream economics.
This book will rectify the status of consumption, restore the value of consumption in economic circulation, endow it with a deserved academic position, and call for the revolution of people’s notion of consumption, since it is of great academic significance in the east and the west. Otherwise, it is impossible to realize the transition in consumption philosophy and the change in the pattern of economic development.
In the traditional consumption study, consumption is an important link of social reproduction. It is the process of meeting the needs of human beings by use of social products. Consumption can be divided into two categories: production consumption and living consumption. The former means the use and consumption of production materials and labor force in the course of production of physical materials. The latter means the behavior and course to use the produced physical materials and mental products to meet the needs of personal life and ‘perform life function out of production course.’ It is the indispensable condition for regaining and reproducing a labor force. Living consumption in its general sense means personal consumption.
In macro economics, consumption refers to a person’s or a country’s total expenditure for consumption within a certain period of time. Before the 1930s, the research on consumption theory was relatively simple; at that time, the dominant orthodox was Marwill’s demand theory. The viewpoint of this kind of demand theory is to assume that consumers’ income is constant; the commodity quantity obtained by consumers changes in the reverse direction with the fall and rise of prices. Engels’ coefficient is an important factor to evaluate consumption level. In this light, consumption plays an important role in macro economics.
In micro economics consumption is studied by examining individual economic units – such as individual producers, individual consumers and the economic activity of individual markets – as research objects to analyze how an individual producer allocates limited resources for various commodity products to obtain maximum profit, and how individual consumers allocate their limited income on various commodities to acquire maximum satisfaction. Micro economics also analyzes how an individual producer determines the output, cost, quantity of production factors to be used, and profit; how the income of production factor suppliers is determined; and how to determine the effectiveness, supply volume, demand volume and price of an individual commodity. Consumption also plays an important role in micro consumption.
Micro economics studies the practice and consequences of individual participants in economic activities. Macroeconomics studies the overall economic behavior and consequences of society overall; it analyzes the overall economic operation, including social output, income, price level, and employment conditions.
Although many scholars have noticed the importance of consumption, the subject has not been given due attention. Karl Marx did not specifically discuss the theory of consumption and Capital has no chapter on it. In early economic works in China there was no theory of consumption; even at the end of the last century, when China had implemented economic reform and become more open, the problem of consumption was not considered, and the importance of consumption has never been established academically.
In the west and in China there is a tradition of overlooking, even suppressing, consumption. This has affected people’s conception of consumption for a long time and become part of mainstream ideology. Consumption and Management believes that it is essential to restore the value of consumption in economic circulation, to endow it a deserved academic position, and to call for the revolution of people’s notion of consumption; unless this is accomplished it will be impossible to realize the transition of the idea of consumption to the mode of economic development.
The historic mission of Consumption and Management is to establish correctly the academic status of consumption, which traces and studies the origin, development, classification, principles and application of consumption with comprehensive research methods to form a systematic theory. The study is involved with such disciplines as philosophy, history, economics, management, leadership science, marketing, and merchandising, which form an inter-disciplinary and inter-filtrating systematic theory on consumption.
Section 3 Classification of human consumption
The problem of classifying consumption is important in consumption study. If the classification is made inappropriately, many wrong conclusions will be drawn. Traditional and new methods of classifying human consumption are described below.
The traditional classification of human consumption
Traditionally consumption is divided into production consumption and living consumption (excluding cultural consumption).
Traditional economics divides the overall process of social production into four categories: production, distribution, exchange, and consumption. Production is a basic stage that determines not only distribution and exchange but also consumption. Types, quality and quantity of products of social production objectively regulate the consumption objects, structure, and patterns. No production, no consumption. It is concluded that production determines everything.
New classification of human consumption
The new classification of human consumption divides consumption into three major parts: living consumption, social consumption, and research and production consumption.
Living consumption
The first and most essential part of living consumption is the most fundamental material and mental consumption of an individual. This consumption is an endless pursuit of human beings from survival consumption to enjoyment consumption. The second part of living consumption is in the form of collective consumption. Generally speaking, it is the collective or an organization who pays the consumption fund (with little or no individual payment) which is applied within the group as consumption expenditure, for instance, the consumption of travel, conferences, and entertainment activities, and all living consumption such as food, clothing, housing, and transportation within the group.
Social consumption
Social consumption is the management consumption of state superstructure, consumption of national defense, consumption of education and scientific research, consumption of sports, consumption of national infrastructure investment, of urban infrastructure, of space flight and so on.
Scientific research and production consumption
Scientific research and production consumption is decided by living consumption and social consumption. Production consumption makes living consumption and social consumption, and then creates new consumption pattern and consumption level. Without needs of consumption, there is no production. And without scientific research and production consumption, it is impossible to realize new consumption desire and reality consumption. Scientific research and production consumption also include exploration, gathering, smelting metal, tool making, and so on, and are the foundation of the three important consumptions.
Consumption is both motive and purpose in production and reproduction. Consumption decides production; the products which are produced in production are consumed in the commodity exchange process by consumers so as to realize the purpose of production: consumption–scientific research, production–distribution–exchange–consumption, wherein consumption goes through the whole process; consumption decides everything.
Consumption determines production and scientific research; the production process is also consumption, where the pattern of consumption is produced. Consumers’ consumption drives the production competition and development, for only in consumption can the products become commodities and new production requirements be created. The purpose of production is consumption, but meanwhile the producers will also generate social benefits and enterprise benefits, otherwise the enterprise will cease to exist. It is concluded that consumption decides everything.
Three levels of human consumption
1. The three levels of human living consumption are:
2. The three levels of social consumption are:
• the consumption of maintaining all the minimum material and mental civilizations, such as the public order, security and living conditions for maintaining the co-existence of countries, areas, nations, and citizens with basic living conditions
• higher level of enjoyment and technology, the consumption of material and spiritual civilizations of maintaining public orders and security of the country and area to ensure the co-existence and co-development of the citizens, and of living conditions, and so on
• high and the higher levels of enjoyment and technology environment, the material, spiritual and cultural consumption for maintaining national and regional safety and security to ensure public order and the desired living environment for co-existence and co-development of all citizens.
3. The three levels of consumption of scientific research and production are:
• the consumption of the scientific research and production tools, apparatus, and equipment that meet the basic need of human survival
• the premise of life enjoyment consumption and social consumption of higher levels is the consumption of higher levels of scientific research technology and production technology
• the preconditions of higher-level life consumables and social consumables: higher-level scientific research technology and production technology; higher-level living consumables and social consumables cannot be produced without higher-level scientific research technology and production technology.
Consumption pattern and consumption level standard
The study of consumption pattern in Capital starts from the commodity production and commodity exchange process, and there is an emphasis on capitalist production mode and production relation.
The formula of study of consumption pattern in Consumption and Management is consumption desire, cognition, and nature create scientific research; the production consumption pattern – scientific research and production consumption – create consumption products, and the consumption pattern – consumption products consumed by consumers – create consumption level and social civilization progress.
Consumption patterns and production relation
The superstructure government represents the overall production mode and production relations of society, the total productivity of the consumption society, and the fundamental interests of the people. The income mode of social members, the redistribution of social wealth and social security pattern of social members are settled with laws and policies. The directorate and operators of enterprises represent the mode of production, production relation and consumption society productivity in a narrow sense; they promulgate enterprise rules, regulations and bylaws based on national laws and policies, and constitute specific distribution policies and award policies on the basis of three driving forces (the material driving force, spiritual driving force and information driving force); and directly influence the awareness of household living consumption as well as consumption pattern. Therefore, the superstructure is of great importance for regulating the national micro consumption pattern.
Consumption classification and standard
The consumption pattern is divided into macro and micro consumption patterns. The macro consumption pattern is the pattern of three important consumptions during the progress of human society, which represents the consumption level and social civilization progress level during the overall process of development of human society. The consumption patterns in different historical periods of human development (Stone Age, Bronze Age, Iron Age, Age of Steam Engine and Internal Combustion Engine, and Electrical and Electronic Age to today) represents the consumption level and social development progress level of that age; nevertheless, if the products are not consumed by consumers, the discussion of consumption level or social civilization progress is out of the question.
The micro consumption pattern is the consumption level of specific consumption patterns in family living consumption and social consumption. The consumption level of individual families depends on the family’s income and consumption awareness. Only corresponding consumption awareness can enable the realization of consumption pattern and level compatible with the income.
Four classifications of scientific research and production consumption
Scientific research and production consumption can be divided into four categories. First is basic scientific research and production consumption, such as consumption of mining, smelting, and manufacturing of raw materials scientific research. Second is consumption of the scientific research and manufacture of production tools, machines, and foods, which is living consumption and social consumption. Third is scientific research and production consumption for social consumption, including scientific research and production consumption of:
• social basic facilities such as city construction, railway, highway, flood control dykes and reservoirs
• national defense, such as consumption of weapons, facility operation tools, and space flight.
Fourth, scientific research and production consumption of living consumption (material and mental products included), including the production consumption of food, clothing, housing, transportation and entertainment books and so on. Each of the four categories forms systematic scientific research production consumption itself. The purpose of all these production consumptions is to meet the ever-increasing material and mental living consumption needs of human beings. The social needs of consumption promote the three important consumptions which are made up of scientific research production consumption according to the circular spiral development rule. This rule is the natural rule of economic development.
Section 4 The theoretical framework of consumption
Consumption is the sum of all the human activities. There is no society without consumption, no economy without consumption, no human-nature relations without consumption. Therefore, to guide all the scientific research of human beings and direct the consuming practice with consumption is the base of academic theoretical research, the starting point, foothold, and destination. Figure 2.1 provided the theoretical framework for consumption research in this book.
Subject definition
Human consumption is the sum of the whole consumption process that is driven by the metabolism instinct to obtain material from nature, then to create new needs and desires by human knowledge, and further to create new material products (including the spiritual culture). It includes the definitions of narrow-sense and broad-sense consumption.
Consumption and Management puts consumption in the broad background of human social science and natural science. It studies the social position, social roles, and function principles of consumption. It is a science that focuses on the practice and function principles of production, living, and social consumption.
At the same time, Consumption and Management deals with the relations between human consumption and nature, human consumption and economic development, human consumption and social civilization and progress, human consumption and consumption practice, as well as human consumption and consumption awareness and action, and so on.
The ladder structure
These are the levels of the ladder structure:
• the systematic theory of structure consumption science
• the three important consumptions of constitutional structure
• the sub-system structure of each consumption system
• the detailed classification of the sub-systematic consumption system (the detailed classification is left out)
• the leadership management during the practice of three major consumptions.
In the three important consumption systems, scientific research and production consumption is the premise of the realization of living consumption and social consumption. Scientific research and production consumption can be divided into three sub-systems – scientific research and production consumption:
• for the realization of living consumption – the scientific research and production consumption which satisfies the increasing material and mental consumption needs of humans, that is the consumption realization of capital’s commodity production and exchange management process
• for the realization of social consumption – the scientific research and production consumption which satisfies the increasing material and mental consumption needs of society
• of basic industry, which is based on the first and second sub-systems.
The realization of the increasing scientific research and production consumption of living and society requires the development of the country itself. Only with the continuous development of productivity can it promise three important consumptions to promote the natural cyclic development of the economy. Scientific research and production consumption derive from consumption; scientific consumption is the production consumption for new knowledge and new techniques which constantly creates new consumption needs and consumption desires. It creates new consumption commodities for living and social life, creates new consumption patterns, and pushes the new development of consumption level.
The process of capital commodity production and capital commodity exchange further expands and promotes the development of consumption commodity channels and socialized exchange of commodities. Today, during the process of capital commodity production and socialization of capital commodity exchange in the overall human society, micro production relation, production relations involving enterprise behaviors and macro production relations of the whole society are also in process; the relationship between economic base and superstructure is in process; the relationship between human consumption and the natural world is in process; the interactions of these relations constitute the basic contradictions of society and form dissipative structures of society. Diverse and complex enterprises are cells of social economic foundation and such non-productive social organizations as social groups, political parties, and religious groups are integrated in the process of three important consumptions of the whole society. However, without three important consumptions, any individual, family, social group, party, religion, or nation cannot survive and there will also be no politics without consumption.
During the active process of three important consumptions, the contradiction between consumption society productivity and productive relation, between economic base and superstructure, and between three important consumptions and the natural world are also generated. The active process of three important contradictions also generates internal contradictions of society and external national contradictions (contradiction among states). Within a nation, the core of all these contradictions lies in the creation and distribution pattern of the wealth consumed by society, the legal form in which the social individual and social groups acquire social consumption wealth, and the proportion of wealth they get. Where people agree with the values and whether people consider the pattern as fair or unfair (absolute fairness does not exist). People’s living consumption and enjoyment of consumption are determined by their share of social consumption wealth; their share of social consumption wealth determines their purchasing capacity, consumption awareness, consumption mode, and behavior as well as the mode and behavior of social activities.
All these are practical activities of three important consumptions, and the practical activities of three important consumptions are management object and management tasks of leadership management science.
The object of study
The research subjects of Consumption and Management are three important consumptions systems (shortened as three systems) of human’s living consumption, scientific research and production consumption, and social consumption in the light of human consumption.
Consumption and Management regards three systems as its main research objects and researches the general rules and all the relations such as the relations between consumers and consumers, between consumption and demand, between consumption and commodity exchange, between consumption and distribution, between consumption and management, between consumption and nature, between consumption and development of human beings, between consumption and human wealth, between consumption productivity and production relations, between consumption and economic base and superstructure, and between the three systems and social activities in the perspective of human consumption. It tries to figure out the basic natural rules, market regulation rules, and macro-control rules of how consumption affects economic development, as well as the general and specific rules in the development process of all kinds of economic relations.
Tasks of the subject
The basic research tasks of Consumption and Management are:
• to use the Marxism consumption theory to summarize the experience in consumption practice
• to make clear the position and functions of consumption in social reproduction
• to increase the people’s consciousness to know and use the consumption mechanism and rules
• to put the understanding of the consumption on a systematic, theoretical and scientific basis
• to study and borrow general doctrine on consumption at home and abroad
• to better master and apply consumption rules
• to supply the scientific foundation for the national economy development strategic goals and the consumption plan, principles, and measures for the realization of these goals
• to propose scientific basis for rationalization of industrial and product structure of national economy
• to push development of productivity of consumption society and the development of social civilization.
Through making clear the consumption mechanism and its movement principles, Consumption and Management attempts:
• through research on the internal connection between consumption, production, distribution, exchange and consumption by consumers, to discuss the nature of consumption and features of socialism with Chinese characteristics under the premise of a market-oriented economy, and its position and function in cyclic national economic development
• through the internal connections and interactions of consumption and economic development, to discuss the decisive function of consumption in promoting economic growth as well as the internal connection between consumption and industrial structure adjustment
• through research on the internal connections and interactions among the needs of consumption, consumption structure, consumption pattern, and consumption level, to discuss the movement, general principle and effect-evaluation standard of consumption
• through research on the interactions among the needs of consumption, consumption structure, consumption pattern, consumption level and their changing trends with superstructure, to discuss the conditioning and direction of national development strategies, principles, policies, plans and regulations for consumption
• through comparative research on consumption theories and practice of China and foreign countries, to draw on the experience of domestic and foreign new research results on consumption and discuss the general mode and rules of consumption movement
• through research on consumption activity and principles of consumption chain, to discuss the consumption psychology, consumption behavior of consumers and their families and their influence on social economic basis and superstructure
• through research on the relations and rules among consumption and nature, scientific research and production consumption, distribution, exchange, consumer’s consumption process.
Aims of the subject
The researching aims of Consumption and Management lie in serving the needs of increasing human material and mental consumption, scientific research, production consumption, and social consumption so as to build harmonious and peaceful social relations and living environment for human beings. At the same time, the book will help people to adapt to the natural rules during the economic development process and obtain the happiness of human beings and harmonious coexistence with nature.
The research work in Consumption and Management is based on the multi-crossing, penetration, integration, promotion, and co-development of philosophy, sociology, economics, management, leadership science, marketing, finance, and other natural sciences. It researches the productivity of consumption society in the perspective of the consumption of human origin and proposes 15 factors of consumption society mechanics. Economy, society, culture, and developing process of human being all belong to the researching sphere.
The breakthrough point of the research is to divide human consumption into three systems – living consumption, social consumption, scientific research, and production consumption; it discovers that this tri-system approach is the rule that promotes the cyclic development of economy and the natural rule of economic development; the production and exchange of commodity run through the needs of the three important consumption systems and creates market-free (natural) financial and economic laws (Adam Smith called it an ‘invisible hand’). After research, we find that it is a visible hand and can be understood and controlled. It has great active and positive functions as well as the negative ones. It is the natural solution for the micro and macro supply–demand contradiction of the unity of opposites. The principal aspect of the contradiction is the great active functions in market-free (natural) financial and economic process, the secondary aspect is the negative functions, but when financial or economic crises happen, the secondary aspect will become the principal aspect and will harm the economy.
The solution of the contradiction is: stick to nation-centered economy and living consumption-oriented macro market regulation system (composed by six aims, three means, and twenty factors), follow the regulation method of continuous prominent-balanced and balanced-prominent in the three important consumptions processes. Guarantee the smooth development and function of natural principles of three important consumptions in macro market regulation process so as to ensure the increasing material, mental, and cultural demands of people.
Research methods of consumption science
Consumption and Management employs scientific research methods. The most outstanding one is that with rich practical experience, the author is able to relate his own practice closely with his research all the time, especially his revolutionary method of tracking down the origin. He stimulates the new ideas through the way of deep thinking based on his theoretical study and abundant practice for 60 years, and extracts the essence of his practice to a theoretical height which is full of descriptive and explanatory features. Five specific research methods are used in Consumption and Management, which are discussed below.
The philosophical method
This method includes dialectical materialism and historical materialism. The philosophical thinking runs through the book of Consumption and Management. A great number of analyses on economic and social problems are full of philosophical wisdom.
The method of qualitative analysis and quantitative analysis
Consumption and Management uses qualitative analyses and quantitative analyses. Based on statistical data, a mathematical model is set up to analyze the indexes and their values of the subject. The method judges the nature, features and developing regulations of the object through the instinct and experience of the author, as well as the past and present conditions and the latest information of the objects. The two methods are used alternatively in Consumption and Management.
The systematic analysis method
Consumption and Management regards consumption as a system and gives integrated analysis for the systematic factors to figure out the applicable solution for the problems. It investigates and researches human consumption processes from the system perspective. In the research mentioned in Consumption and Management, it always regards consumption as a complete and complex system so as to avoid one-sidedness.
The investigatory research method
Many conclusions in Consumption and Management are based on on-the-spot investigations and usage of basic theories and research on internal rules of consumption. Another feature of this book is that it pays great attention to sampling-based survey and case-based study, so the data in the book are reliable, and the conclusions are reasonable.
The comparative research method
Comparative research methods are used extensively in Consumption and Management. The methods include theoretical comparative research, management comparative research, marketing comparative research, cross-cultural and cross-discipline comparative research, and so on. The vertical comparison in Consumption and Management focuses on the comparative analysis of the same comparable subject – consumption in different situations with different characteristics in different periods, and the horizontal comparison in the book focuses on the comparative analysis of the different consumption conditions and characteristics in the same period. Through vertical comparison and horizontal comparison, readers can understand consumption – the core topic in economic and social development – from different angles.
The arrival of the consumption era in China
Economic development and consumption theory are mutually reinforced and supplementary; the study of consumption theory promotes economic development and social civilization and economic development also promotes the study of consumption theory; the relation of the two is inseparable and dialectically unified.
At present, in China, more and more scholars are beginning to take up consumption study. Although no systematic theory has formed, these studies raise people’s awareness of consumption and promote economic development. Now, the systematic theory on consumption is being shaped, and the systematic theory will surely guide the economic development of China. It will not only guide the Chinese government’s decision-making concerning the macro control of the national economy, but also will instruct the formation and sophistication of the modern consumption concepts of Chinese people. It is obvious that the role of theory cannot be ignored.
In addition, in today’s China, consumption theory is ever-developing and becoming more sophisticated and a consumption theory with Chinese characteristics is gradually taking shape. The reason behind that is that during the economic development of China, the theorists gained clearer understanding that consumption plays a key role in promoting the national economic operation, and they also reasonably gained the knowledge that consumption also plays a decisive role in economic and social operation; consumption deserves very important academic status. The reality repeatedly proves that the author’s perspective on consumption years ago was correct and scientific.
Here is an analysis of the current consumption characteristics in China.
First, the 17th CPC National Congress defines the strategic decision to transform the economic growth mode transformation, expanding domestic demand and transforming the investment-led growth model to a consumption-led growth model; this decision is fully based on the theoretical basis of modern consumption. The central authorities not only notice but also attach great importance to the significant role of living consumption in driving economic development.
In the 17th CPC National Congress, Hu Jintao, Party General Secretary, brought forward some new requirements for the goal of building a moderately prosperous society, including a number of new requirements for the consumption patterns in China. This was the first time that consumption patterns in China and related new requirements were issued in the Party Congress, and they have great guiding significance.
According to consumption economics theory and international experience, when GDP per capita reaches 1,000 dollars, the consumption structure of people begins to change from one of survival to one of enjoyment and development, and businesses like retail and automobile industries are stimulated; when the GDP per capita reaches 3,000 dollars, it will enter a full development period with the all-round development of housing, insurance, and tourism. At the time GDP per capita of China reaches 1,800 dollars; in some areas the number is even higher. It means China has entered a transition period of the new round of consumption structure updating; most areas have begun to enter enjoying type. Against that background, it is very possible for China to transition from an investment consumption and import and export trade consumption pulling type into a domestic living consumption pulling type and to comprehensively promote economic development via domestic market.
In addition, economic development is not necessarily at the cost of large investment. In recent years, the scale of social consumption investment has grown much bigger. If the scale keeps developing, then the scale of social consumption investment will continue to increase in the tenth Five Year Plan. Some experts estimate that if the present investment ratio adds 1%, the GDP of China will add 0.22 of a percentage point; if the citizens’ consumption ratio adds 1%, the GDP of China will add 0.87 of a percentage point. From these data, we can see that the living consumption contributes a lot to the economic development, and we should pay more attention to the proportion relations of the three important consumptions.
Market economy is decided and driven by consumption demand. However, it must be centered on a living consumption under state-led economy; market macro control of the market refers to that during the commodity and commodity production exchange process, six purposes, three means and twenty factors are applied to achieve dynamic control of balance and imbalance; in that way, the sustainable economic development is achieved through continuous regulation.
In the next half year of 2007, most GDP growth in China comes from domestic demand: the dominance of investment consumption is converted into the dominance of living consumption. According to data from national statistics bureau of China, Mark Williams, economist of the London Research Institute, predicted that from July 2007, the growth contributed by living consumption would exceed the contribution of investment consumption. Governmental control on bank credit will enable the consumption growth rate to slow down.
According to the statistics of consumptive expenditure data in China, the actual expenditure of residents is significantly growing, especially in education, housing, and tourism, where sharp increase is witnessed. In 2007, the growth rate of urban disposable income per capita exceeded the growth of GDP for the first time in the past five years; it was an important stimulus factor and facilitated consumption to maintain rapid and sustainable growth.
Most developed countries, America included, hope that China’s growth rate depends mostly on domestic demand living consumption, less on export consumption and investment consumption, and this is also internationally constructive for China. If China’s trade surplus no longer expands, domestic consumption demand will play a more important role in economic growth, and then the tensional situation of international trade will be eased.
Next, we will notice that at present China is converting from an export consumption country to a domestic consumption country to promote economic growth and development.
It is undoubtedly a highlight under the background of the global recession that China has been converted from an export consumption country into a country where economic development is driven by domestic consumption.
It can be seen that in 2007 such domestic demands as road and railway construction, automobile and clothing production were a powerful driving force of the economy.
The international balance of payments of China of regular items broke a new growth record in 2007, accounting for 10% of gross domestic output value. It means that China’s output greatly exceeds consumption volume, and it is urgent to export surplus products. It is the trade surplus variable, not the absolute value, that influences a country’s GDP growth. The growth of China’s net export (export volume minus import volume) has never become the main factor of economic growth. From 2005 to 2007, the net export of China only contributed 2–3 percentage points to China’s GDP growth, and, oppositely, the contribution of domestic demand reached 8–9 percentage points. The recent data indicates that although export contributes to the economic growth, for the export products, some consumers tend to be more rational and economize and some consumers tend to pursue vogue and fashion and prefer to enjoy the exquisite life and consumption style.
Individualism and convergence coexist in the consumption market and internationalization is as important as regionalization. On one hand, people will only focus on limited brands in purchasing electrical appliances, packaged food, and soft drinks; one the other hand, few brands are powerful enough to occupy a large market share, such as clothing, cosmetics, and cigarettes and drinking brands. In addition, people tend to select international brands for laundry products and audio and video products, and tend to select regional products for seasoning products and deepfreeze products.
Physical consumption and service consumption are classified into several grades. People will search for appropriate places according to their own income status. High-grade leisure places like villas, high-grade marketplaces and high-grade recreation places are impossible for those on a low income. Places like storage-type marketplaces, convenience stores, and consumption cooperation marketplaces are popular with those on a low income. The appearance of various retailing places, such as shopping centers, large-scale marketplaces, supermarkets, convenience stores and special stores, meet the requirement of different consumers. Places like beauty and hair salons, night clubs, bathing centers, and bowling gyms will become the spiritual and cultural homes of people with higher incomes.
The situation of consumption saturation or lack of consumption among high-income people continues to co-exist with the situation of high consumption demand but low consumption capacity among low-income people. High-income people have purchased houses and cars and have their houses well-furnished. However, although low-income people want to consume 10,000 or 100,000 Yuan each year, they do not have enough money at hand, which inevitably promotes the development of credit consumption and lease consumption.
In summary, in the first 15 years of the 21st century, basic living consumption tends to continuously upgrade. People’s living consumption is becoming more high-grade and the focus of the overall consumption of residents is gradually converting from living consumption to focus on improvement of life quality and converting from the pursuit of material consumption to the pursuit of spiritual and cultural consumption, and converting from satisfying the basic living consumption to aspiring for people’s overall development. People will pay more attention to famous brand consumption, environmental protection, and energy conservation; spiritual and cultural products will become popular, and intelligent, convenient, beautified, individualized, and green consumption will become the main trend.
Finally, savings of Chinese residents have great consumption energy. At the end of 2007, the household deposit balance of financial institutions had reached 17,600 billion Yuan.
For the first half year of 2008, various Renmingbi deposits had increased by 496.49 million Yuan, realizing a year-on-year increase of 157.74 million Yuan. At the first half year, the household savings deposits increased by 2207 billion Yuan, realizing an year-on-year increase of 1379.8 billion Yuan. According to the statistics, among the newly increased deposits in the first half year, over 44% of deposits are contributed by household savings deposit. In June, RMB deposits increased by 771.5 billion Yuan, household savings reached 371.1 billion Yuan, and the household contribution rate for the newly increased deposits reached 48.36%. In addition, the deposits of non-financial companies increased by 1625.6 billion Yuan, which is a year-on-year decrease of 27 billion Yuan. This huge sum of deposits will be converted into a kind of great consumption energy along with the advent of the consumption era.
China is promoting the transformation of savings to consumption, which is obviously one of China’s focuses in stimulating domestic demand. Along with the growth of income and savings of Chinese people, the yearly consumption level of some of the high-income residents in China has increased from 10,000 Yuan to 100,000 Yuan and to hundreds of thousands of Yuan. To achieve this transformation, the self-accumulation of residents will require a long time, and the development of consumption credit will promote the consumption demand of residents. Therefore, the state will reinforce its management for emerging hot consumption markets and establish a standardized credit system as soon as possible to promote the rapid development of consumption credit and provide an excellent consumption environment for consumers.
In summary, through 30 years of opening up and reform, China is gradually transforming from a planned economy to a market economy and has made world-renowned achievements. Chinese people are ‘fumbling through the river’ in practice and explore the road of development. At present, China has implemented an economic development pattern which centered on living consumption under the guidance of macro control of the state-led economy. During the great development of the economy, society, culture, and civilization over 30 years, the government and entrepreneurs of China have acquired valuable experience; however, because they continue to lack substantial experience, there are also lessons to be drawn in future practice. In the rapid development of world economy and in the big trend of transforming towards economic globalization, the road taken by China is worthy to be noticed by international communities.