MasterCard Research Establishes Non-Income Factors as Influential in Chinas Consumption Behavior

MasterCard study Consumption Facilities Index for China, conducted by the Beijing based National Economic Research Institute (NERI), found that differences in the level of consumption in China are affected not only by personal income, but also, to a very significant degree, by differences in a range of non-income factors, which are related to levels of development of transportation and communications infrastructure, urbanization rates, and labor mobility. - (Voice your opinion)

The commissioned research is empirically and quantitatively based, with econometric modeling employing five years of historical data and covering 30 of Chinas 31 provinces (Tibet is excluded due to inadequate data). The non-income factors that have been identified as the most important consumption facilities are: transportation infrastructure, water transportation infrastructure, conventional communication, online communication, income disparity in urban areas, income disparity in rural areas, social security coverage, labor mobility, and urbanization rates. While income remains the most important factor in accounting for 54% of differences in consumption levels between provinces, the 9 non-income factors, astonishingly, account for over 40% of the differences. This finding implies that if income remains unchanged, improvement in these non-income factors could potentially lift consumption by up to 40% of the current level, benefiting mostly provinces that are in the interior and with less developed infrastructure. Indicators Contribution Rate(%) Personal Income 54.1 Railway Infrastructure 6.9 Water Transportation Infrastructure 2.8 Conventional Communication 3.1 Online Communication 3.9 Income Disparity in Urban Areas -0.6 Income Disparity in Rural Areas -0.6 Social Security 0.4 Labor Mobility 3.6 Urbanization 17.6 The improvement in the consumption facilities will in turn encourage the emergence of Chinas premium consumer markets which will look very different from the traditional approach that only focuses on income growth. If the infrastructures are developed on a balanced basis, not only will it contribute to sustainable growth, but it will also close the urban-rural income disparity that has been growing in recent years.