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Investment Rate and Consumption Rate: Evolvement Rules and Empirical Tests —A Case Study on the Evolving Patterns of China’s Investment Rate and Consumption Rate


By Li Jianwei, Research Team on “Reform of China’s Income Distribution Mechanism”,Research Department of Social Development of DRC

Research Report [Special Issue No.45 (Total 1448), 2015] 2015-12-23

Abstract: Theoretical analysis demonstrates that investment rate and consumption rate can undergo inherent cyclical changes and the developing trends of their dynamic equilibrium value depend on the consumption structure, export structure, and industrial structure thereof. Investment acceleration factors have a crucial impact on the pattern and direction of cyclical changes in investment rate and consumption rate. Since the implementation of reform and opening-up, the cyclical upward trend of China’s investment rate has been driven by an increasing degree of heavy chemical industry-based industrialization and continuously lengthened industrial chain which are determined by improved final consumption structure. Constant rise of industrial investment acceleration factors plays a decisive role. Simulated analysis shows that influenced by industrial structural imbalance prior to China’s reform and opening-up and optimized and readjusted industrial structure ever since, the dynamic equilibrium value of China’s investment rate went astray for a time from the simulated value required by economic structure, but the two values got converged after 1990s. The dynamic equilibrium value of China’s investment rate went astray once again from the simulated value after 2007, which is mainly a result of external impacting factors such as the US financial crisis. In the future, China’s investment rate will enter a period of cyclical downturn.

Key words: investment rate, consumption rate, evolvement rules, developing trends