New data show that rural residents in China are beginning to save less in order to spend more. Specifically, spending as a percentage of income among rural residents is increasing as their disposable income increases. This is not the case in urban locations, where spending as a percentage of income is decreasing. One reason for this may be that many basic consumption needs (one-offs such as kitchen appliances) have already been met for many urban dwellers. It also could be that urban dwellers are facing increasing pressure to save for rapidly rising prices for property, education, and health care.
The future of Chinese consumption depends on Chinese households spending more as a function of both earning more and saving less. On the first driver, the household share of national income continues to rise, but from a low base. On the second driver, for the 57 percent of the Chinese population living in cities, the propensity to save is on the increase. Considerably more progress is needed.