Group 1: Historical Consumption Trends in the U.S. - From 1960 to 1990, the Permanent Income Hypothesis (PIH) effectively explained consumer behavior, but its validity diminished post-2000 due to financial innovations and external shocks[2] - The average consumption propensity in the U.S. has fluctuated between 85% and 96%, indicating a consumption-driven economy[27] - The financial crisis of 2008 led to a significant drop in consumption propensity, which only began to recover in 2013 but remained below pre-crisis levels[30] Group 2: Factors Influencing Consumption - Tax cuts and financial innovations have historically boosted U.S. consumer propensity, suggesting similar strategies could benefit China amid its aging population[2] - The wealth effect, particularly from real estate, has a dual impact on consumption, with rising home values increasing spending capacity while high mortgage burdens suppress it[61] - Rising rental costs have increased the share of disposable income spent on housing, from under 22% in 2001 to nearly 30% in 2023, further constraining consumer spending[64] Group 3: Policy Implications - U.S. consumption policies, including tax reductions and unemployment benefits, have been crucial in stimulating economic growth during downturns[36] - The expansion of social security and healthcare spending has a positive correlation with consumption propensity, although recent stagnation in these areas may limit future growth[69] - The shift in monetary policy frameworks has led to a greater reliance on current income rather than long-term expectations, affecting consumer behavior[54]

Group 1 - The core issue of service consumption recovery is that it is slower compared to goods consumption, with a significant gap in service consumption tendency compared to historical trends, indicating that income may not be the primary constraint on service recovery [2][8][107] - In 2024, the gap in per capita service consumption compared to historical trends is 2,093 yuan (13.9%), while the gap for goods consumption is only 458 yuan (2.9%) [2][8][107] - The increase in working hours, averaging 6 hours and 23 minutes per day in 2023, has reduced leisure time, which is crucial for service consumption [2][19][107] Group 2 - The increase in working hours has led to a concentration of consumption during holidays, but the legal holiday days are relatively few, with only 18 days mandated for 2025, significantly lower than Japan and South Korea [3][30][108] - The service sector is a non-trade sector, and insufficient effective supply will constrain the recovery of service consumption more than that of goods consumption [4][49][109] - Employment in the service sector has decreased compared to historical trends, indicating an excess supply gap, particularly in life services such as education and entertainment [4][60][109] Group 3 - The lack of entrepreneur confidence is a significant constraint on service supply, with high industry costs and increased debt pressure contributing to this issue [6][110][111] - Investment in the service sector, especially in life services, has not kept pace with profitability, indicating a cautious investment behavior among entrepreneurs [6][90][110] - The shift in investment logic from proactive to reactive, driven by profitability, has led to a slowdown in investment growth, particularly in the health and education sectors [7][90][110]

Core Insights - The report highlights that China's consumption rate is significantly lower than the average of 38 countries, with a rate of 37.2% compared to 53.8%, indicating a complex economic and social landscape [1][3] Consumption Tendencies - China's consumption tendency is notably low, with a rate of 62% in 2022, while the average for 38 countries is 92.3%, meaning that for every 100 yuan of disposable income, only 62 yuan is spent [3][4] - High housing prices have historically pressured residents to save for home purchases, with an average of 20% of disposable income allocated to fixed asset investment, compared to only 8.3% in 38 other countries [5] Income Distribution - In 2022, the disposable income of Chinese residents accounted for 60% of GDP, slightly above the 38-country average of 58.2%, but this figure masks underlying issues [6][10] - The initial distribution of income in China is lower than the average of 38 countries, with a ratio of 61.4% compared to 63.2% [10] Secondary Distribution - The net transfer income of residents in China was -1.4% of GDP in 2022, which is better than the average of -5.0% for 38 countries, but this figure raises concerns about social security [11][17] - The tax burden in China is low, with income and property taxes accounting for only 1.2% of GDP, compared to 8.1% in other countries, which diminishes the effectiveness of social security [17] Deep Analysis - The low consumption rate in China is attributed to low consumption tendencies, unequal income distribution, and inadequate social security, which discourage spending [18] - To revitalize consumption, improvements in social security systems, income distribution, and diversification of income sources are necessary [18]

Core Viewpoint - The article discusses the relationship between real estate prices and consumption in China, emphasizing that the primary driver of real estate value is land, which has monopolistic and financial attributes. This leads to a strong cyclical nature in real estate, where rising prices often correlate with increased private sector leverage, particularly among low-income households [1][2][3]. Group 1: Real Estate and Consumption Dynamics - The relationship between housing prices and consumption is not straightforward; both may be driven by credit expansion. In the early stages of a financial cycle, credit expansion raises housing prices, which in turn boosts credit, potentially accelerating macroeconomic consumption [2][3][12]. - During the financial cycle's downturn, housing price adjustments lead to a contraction in credit and consumption, indicating that macro policies should focus on fiscal measures to address demand shortages, such as supporting social welfare and housing for families [2][3][12]. Group 2: Wealth Effect and Consumption Factors - Key factors influencing consumption include current wealth, income, income expectations, and consumption propensity. The relationship between these factors and housing prices varies across different economic contexts and stages of real estate development [3][14]. - The wealth effect suggests that rising housing prices can increase the wealth of homeowners, potentially boosting consumption. However, this is often accompanied by rising debt levels, which may not sustain long-term consumption growth [3][14]. Group 3: Historical Context and Comparative Analysis - Historical experiences from the US and Japan show that consumption tends to perform well during housing price increases and weakens during declines. In China, consumption growth was not significantly boosted during the rapid housing price increases from 2016 to 2019, likely due to rising leverage suppressing consumption [4][15][16]. - The article highlights that in the US and Japan, during housing price increases, consumption growth is typically stronger in services compared to durable and non-durable goods. In contrast, during price declines, consumption shifts towards essential services and non-durables, with durable goods facing more pressure [5][44][47]. Group 4: Structural Changes in Consumption - The article notes that as housing prices rise, consumption patterns shift, with services like healthcare and entertainment seeing higher growth rates compared to basic necessities. This trend is observed in both the US and Japan, where the demand for convenience and upgraded services has increased [31][59][66]. - In China, the consumption growth rate has been declining alongside rising housing prices, indicating a potential disconnect between wealth accumulation through real estate and actual consumption behavior [26][28][30].

Group 1: Consumption Rate Analysis - China's consumption rate is only 37.2%, which is 16.6 percentage points lower than the average of 53.8% across 38 countries[1] - The low consumption rate is primarily due to a low consumption propensity of 62%, compared to the average of 92.3% for the 38 countries[2] - The disposable income of Chinese residents is not low, accounting for 60% of GDP, slightly above the 38-country average of 58.2%[3] Group 2: Income Distribution Factors - China's initial distribution income as a percentage of GDP is 61.4%, lower than the 38-country average of 63.2%, mainly due to low net property income[4] - In 2022, China's net property income was only 3.2% of GDP, compared to 6.2% for the 38-country average[5] - The reliance on interest income (76.2%) over dividend income (10.2%) indicates a lack of diversified property income sources[6] Group 3: Taxation and Redistribution - China's net transfer income as a percentage of GDP was -1.4%, better than the -5.0% average of the 38 countries, indicating a lighter tax burden[7] - The tax burden on residents is low, with personal income and property taxes accounting for only 1.2% of GDP, compared to 8.1% for the 38-country average[8] - Increasing tax burdens to match the 38-country average while enhancing transfer payments could potentially raise consumption by 1.6 trillion yuan and increase the consumption rate by 1.3 percentage points[9]