Communist Revolution to Consumer Revolution:
A study of saving and consumption patterns for urban members of China’s
Generation Y and the social drivers behind those patterns
Undergraduate Honors Thesis
Sanford School of Public Policy
Duke University
Durham, North Carolina
Conor Quinn
Advisors: Dr. Gary Gereffi and Dr. Judith Kelley
December 2014
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Abstract
In November of 2013 during the Communist Party’s Third Plenum, the government of
the PRC announced an effort to shift the drivers of economic growth from heavy government
spending and exports to domestic demand. This shift will require a push to increase consumption
and drive down savings among Chinese citizens since past studies have shown a high propensity
to save among Chinese and relatively low levels of personal consumption when compared to
international peers, attributed to China’s unique growth path and culture. Yet no study has
examined the consumption patterns of China’s youngest generation, Generation Y, which has
grown up under widely different circumstances than previous generations. My paper analyzes a
sample population of 70 people between 22 and 34 in Chinese cities. It concludes that due to
societal factors related to the One Child Policy and the Reform and Opening of the late 20th
Century, that Generation Y saves less and consumes proportionately more than the rest of
Chinese society. Factors driving this trend include this generation’s greater susceptibility to
advertisements, their lower incomes, and their strong belief in continued economic growth,
which are factors unique to Generation Y. Understanding Generation Y and their savings and
consumption patterns will be important for the Chinese government as it works to increase
individual consumption as a way to fuel economic growth, as well as for many outside of China
since Chinese consumers continue to make up an increasingly large proportion of the global
marketplace.
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Table of Contents
I.
II.
III.
IV.
V.
VI.
VII.
i.
ii.
iii.
iv.
v.
vi.
i.
ii.
i.
ii.
iii.
iv.
v.
vi.
VIII.
IX.
X.
XI.
Abstract………………………………………………………………………………………………Page 2
Table of Contents………………………………………………………………………………...Page 3
Introduction………………………………………………………………………………………..Page 4
Theories of Savings & Consumption and Gen Y’s Place in Society…………..Page 5
The Life Cycle Hypothesis and its Role in China……………………………….Page 5
Relationship Between Development and Consumption……………………Page 6
The Generational Cohort Theory and China’s Generation Y………..…….Page 7
Socioeconomic Events Set Generation Y Apart from the Rest of
Chinese Society……………………………………………………………………………...Page 8
Gaige Kaifang or Reform and Opening…………………………………....……….Page 9
The One Child Policy………………………………………………………………………Page 11
Theory and Hypotheses……………………………………………………………………….Page 12
Methodology……………………………………………………………………………………….Page 17
Research Design…………………………………………………………………………….Page 17
Data Collection………………………………………………………………………………Page 18
Observations……………………………………………………………………………………….Page 21
Chinese members of Generation Y have a lower rate of savings than
Chinese society overall…………………………………………………………...……...Page 21
No observable distinctions in the savings rate between only-children
and those with siblings………………….………………………………………….……Page 22
Economic stability and its effect on consumption……………………..……..Page 23
Individuals’ reported susceptibility to advertising varies significantly
from generation to generation……………….………………………………………Page 25
Generation Y accounts for a significantly larger portion of E-tail purchases
but E-tail purchases do not account for a significantly larger portion of
Gen Y’s purchases when compared to other methods of consumption......Page 26
No significant difference in savings rates between men and women...Page 28
Limitations………………………………………………………………………………………….Page 28
Conclusions…………………………………………………………………………………………Page 29
Appendices………………………………………………………………………………….………Page 33
Works Cited………………………………………………………………………………….……..Page 37
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Introduction:
On October 17th, 20141 in Beijing there were two long queues at the center of the city.
One was outside the mausoleum of Mao Zedong where families and school groups snaked
around Tiananmen Square as they waited their turn to pay their respects to the founder of the
People’s Republic. The other queue was less than 2km away outside the Apple store in
Wangfujing, where tech savvy millennials waited eagerly to be the first of their friends to own an
iPhone 6 (Bora, 2014). This juxtaposition shows the apparent contradiction that exists today in
China, a country that has embraced Western goods and market capitalism following its reform
and opening (referred to as Gaige Kaifang in Mandarin) despite being ruled by the Communist
Party. This contradiction began in 1979 when the Chinese government placed economic growth
and development ahead of communist ideology; however it has never been more apparent than
2014 when the Politburo unveiled its new economic growth model which hinges on an increase
in personal consumption. While an increase in individual consumption will be key to the success
of the government’s new growth plan it is likely going to be a harder transition for some
members of Chinese society than others.
Generation Y, those born between 1980 and 2000 in China, holds a unique position in
Chinese society because its members have only lived in a post-Gaige Kaifang China and
consumer markets and Western influence have always played a role in their lives (Fam et al.,
2008). They grew up in a different culture than their parents and their grandparents who lived in
Maoist China and carry that legacy with them. As a result of these generational differences,
members of China’s Generation Y differ from the rest of Chinese society. The purpose of this
research is (1) to test to see whether members of this generation consume more and save less
1
Apple’s iPhone 6 and iPhone 6 Plus were launched in China on this date.
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than the rest of Chinese society and (2) to understand what societal factors could be causing this
generational shift if it does in fact exist.
As the second largest economy in the world and the largest country by population, China
will inevitably play an even larger role in the global economy for years to come. The drivers of
the modern Chinese economy will be the youth who make up Generation Y. Understanding their
saving and consumption patterns and the social factors behind these patterns will be vital for
people across the globe as the spending habits of China’s Gen Y will have implications for
individuals, businesses, multinational organizations, and even national economies.
Theories of Savings and Consumption and Gen Y’s Place in Chinese Society:
The Life Cycle Hypothesis and its Relationship to China
Modigliani and Brumberg published their “Life Cycle Hypothesis” in 1954 in an attempt
to describe the phenomenon of consumption. They argued that one’s level of consumption and
savings shifted depending on age and that savings over one’s lifetime could be represented as a
hump-shape, with rising and falling levels that were directly correlated with age. This humpshaped description of savings meant that individuals were likely to save the most when they were
middle-aged and save least when they were very young and very old (Loayza et al., 2000).
However, Modigliani admitted that his theory is only relevant for developed markets as
developing economies, like China, presented a number of issues including varying rates of
inflation, unstable economic growth, and shifting demographic trends (Modigliani and Cao,
2004).
Historical data collected between 1990 and 2005 show that the lifetime savings patterns
for Chinese individuals actually appears as a “U” shape, the inverse of Modigliani and
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Brumberg’s Life-Cycle hump. Over the course of Chinese individuals’ lifetimes, they have
higher savings rates when they are young and old and relatively lower rates of savings when they
are middle-aged. However, over time, the “U” shape of China’s lifetime savings has become
flatter and more shallow (Chamon et al. 2011). The flatter shape of the savings curve of
individuals in China over their lifetimes could potentially represent China’s transition from a
developing country to a developed one as characterized by Modigliani and Brumberg. If this is in
fact happening, we would expect to see a lower rate of savings for those in Generation Y during
their early adulthood.
Relationship Between Development and Consumption
As noted above China is still a developing nation; however, it has undergone a
remarkable economic transformation over the last 35 years. It has broken the shackles of its
centrally planned past and embraced a market economy, which has allowed it to transform from
a poor and under-developed nation into a modern economy with a rapidly growing upper and
middle class. In 1978, few Chinese fell in the middle class of society but now there are around 50
million people included in the ever-growing Chinese middle class, and around 46 percent of
Chinese respondents to a research survey identified themselves as middle class (Fewsmith,
2007).
As China continues its transformation from a developing to a developed economy, it
would be expected that private consumption would increase alongside this development. As
Veblen famously noted in his Theory of the Leisure Class individuals consume in order to
display their wealth and an individual’s utility from consumption is a function of both the good
they consume and the esteem derived from the evidence of that good’s consumption (Veblen,
1899).
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Had this thesis been an analysis of the consumption habits of Chinese youth in 1978, it is
unlikely that the analysis would have yielded the same results given that the majority of society
occupied the lower class and, therefore, would have been unlikely to feel the need to consume
conspicuously. In the past, when a majority of Chinese citizens fell in the lower class and
poverty was common, frugality was not necessarily a choice but a matter of survival. At that
point, the drivers behind consumption were radically different than what I theorize they are now.
As a result of the rapid rate of development over the last 35 years, Chinese citizens now have the
required wealth to increase consumption of non-basic necessities. A period of growth in
individual consumption is a basic part of any economy’s growth pattern and follows a period of
industrialization and development (Rostow, 1960). China has now reached the level of
development where a large proportion of its citizens have the ability to consume hedonically;
however, the ability and the desire for hedonic consumption are two very separate phenomena. I
theorize that while many in China now have the ability to consume more, that they still choose to
consume less and save more than necessary because of the socioeconomic realities that defined
their upbringings. However, I theorize that Generation Y, which grew up under very separate
socioeconomic conditions, has fully embraced the consumption that this stage of development
predicts.
The Generational Cohort Theory and China’s Generation Y
As I explore whether members of Generation Y spend more of their income and save less
than the rest of Chinese society, it is important to understand the generational cohort theory and
its application to China. Generations help aide the understanding of different groups within
society and allow for a better understanding of behavior for individuals of a certain age.
Inglehart’s Generational Cohort Theory suggests that each new generation is formed after a
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major event within a society shakes the very foundation of that society and drastically alters the
existing social order (Fam et al., 2008). Inglehart noted in a later study that the difference in
attitudes and values between different generational cohorts tends to be strongest in nations that
have experienced rapid economic growth, like China (Fam et al., 2008). The massive societal
changes that have occurred in China since the founding of the People’s Republic in 1949 have
created a number of distinct generational cohorts.
While there is extensive research on all of the generational cohorts in China, the focus of
this paper is Generation Y, the youngest generation of adults in Chinese society. Wang and Wu
describe members of Generation Y as those who were born between 1980 and 2000, a period
marked by the beginning of both the One Child Policy and China’s Reform and Opening process.
Members of this generational cohort are described as being highly motivated and career driven as
well as optimistic and knowledgeable (Fam et a., 2008). This is the generation whose urban
residents are extremely brand conscious and are reported in some cases to save three months of
their salary to buy a new handbag (Williams, 2013). They hold a unique place in society as a
result of the events that shaped their upbringings, which will be discussed further below, and
because of the differing values and attitudes that they hold compared to the generations that
came before them. These differences provide an interesting area to focus this study and a
possible explanation for why members of Generation Y save and consume in a very different
manner.
Socioeconomic Events Set Generation Y Apart from the Rest of Chinese Society
Generation Y truly occupies a unique position in Chinese society. The exceptional
socioeconomic events that defined their upbringings have led to a number of consequences that
contribute to the way Generation Y thinks and lives. Understanding these socioeconomic events
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is key to my research, as I believe that the factors driving the increase in consumption and
decrease in savings for Generation Y are directly related to two major socioeconomic events that
defined their upbringing, the One Child Policy and the Reform and Opening of 1978.
Gaige Kaifang or Reform and Opening
The collective policy initiatives referred to as Gaige Kaifang, or as Reform and Opening
by Western observers, was one of the two defining societal events that marked the beginning of
Generation Y and shaped the character of this generational cohort. In 1978, two years after the
death of Mao Zedong, the Chinese Communist Party (CCP) Central Committee held a plenary
meeting to discuss the future of the country. During this meeting CCP Central Committee Vice
Chairman Deng Xioping delivered a rousing speech that is widely cited as the beginning of the
Reform and Opening process (Sweetman and Zhang, 2009). However, it is important to note that
Reform and Opening was not a single policy or set of policies but rather a process in which the
government experimented with, adopted, and abandoned a number of reforms designed to
strengthen China economically. While Deng is often credited as the designer of this policy, it in
fact had many architects and its effects were sometimes carefully planned but also often
unintentional (Sweetman and Zhang, 2009). Nevertheless, the set of policies collectively referred
to as Reform and Opening that began in 1978 and continued throughout the rest of the 20th
century, had far reaching consequences for China and particularly for Generation Y.
This was a period of immense growth in which China rose quickly from a centrally
planned developing country to a market oriented economic superpower. The first major aspect of
the reform process began in 1979 with the creation of a Special Economic Zone (SEZs), which
allowed politicians to experiment with more liberal economic policies in a controlled
environment in Senzhen. This type of reform continued into 1980 and 1981 when three more
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cities (Xiamen, Zhuhai, and Shantou) were designated as SEZs (Sweetman and Zhang, 2009).
After the successful economic growth of these cities,\ the central government opened up 14
additional cities to foreign direct investment (FDI) in 1984, which allowed for huge growth
beginning with the creation of joint ventures and eventually resulting in the establishment of
wholly foreign-owned enterprises (WFOEs) in many Chinese cities. By 1993 FDI in China grew
from virtually nothing before 1978 to $26 billion in 1993 (the second most in any nation). Price
reforms and a contract system for State Owned Enterprises (SOEs) enacted in the mid 1980s also
had major implications that shifted China from a centrally planned economic model to a market
oriented one (Sweetman and Zhang, 2009). Furthermore, the eventual reform of the banking
system including the devolution of the People’s Bank of China into smaller semi-autonomous
banks and the creation of a new central bank during the early 1980s helped further economic
growth and investment in Mainland China (Sweetman and Zhang, 2009). While none of these
reforms singlehandedly jettisoned the Chinese economy into its spectacular growth trend,
together they amounted to significant policy shifts which allowed China to grow at a consistent
rate of above nine percent per year for over 30 years (Sweetman and Zhang, 2009). This
incredible growth resulting from the Reform and Opening policies defined the China of
Generation Y’s upbringing. The monumental shift in socioeconomic conditions in China
naturally left Generation Y with very different attitudes and social values then those in
generational cohorts who were not raised in this setting. These differences form some of my
hypotheses on why Generation Y consumes more and saves less than the rest of China and will
be discussed further in the theory and hypotheses section; however, to understand those
differences, it is important to understand this period of extreme growth and reform that could
potentially account for those differences.
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The One Child Policy
In the 1960s and 1970s China was faced with a major demographic challenge. As a result
of increased development following the founding of the People’s Republic of China in 1949 the
Chinese had better nutrition, better sanitation, better prenatal and medical care, and a greater
ability to stop the spread of communicable diseases which all led to a surge in the population
growth rate (Naughton, 2007). The population growth rate peaked in the 1960s at three percent,
which greatly worried the central planners of the CCP who feared that the growing Chinese
population would eventually surpass the nation’s population carrying capacity and hinder further
economic development (Naughton, 2007). The government therefore experimented with a
number of population control policies throughout the 1970s designed to encourage individuals to
get married later in life, to wait longer between the births of their children, and to have fewer
children in total. These policies had some success in curbing the population growth rate but they
were not successful enough to calm the policy makers in Beijing who still feared that the
population growth rate was one of the biggest threats facing China’s economic growth. As a
result, the government introduced a strict policy referred to as The One Child Policy that limited
the number of children Han Chinese could have to one per household (Naughton, 2007). This
policy was introduced in September of 1980, the same year that marked the end of the previous
generation and the beginning of Generation Y.
The policy was wildly successful in reducing the birth rate and the population growth rate
of China. It was incredibly strict at first and employed a number of draconian measures to
enforce the single child rule including mandatory insertion of intrauterine devices for women
with one child, forced sterilizations of men and women with more than one child, and abortions
for unauthorized conceptions (Naughton, 2007). While these initial and extremely harsh
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measures were eventually scaled back, the crux of the policy remained in place and continued to
be wildly successful, especially in cities where it was much easier to enforce. In urban areas,
local officials were able to monitor women in various work units by tracking their fertility cycles
and assigning birth quotas and birth queues (Naughton, 2007). These policies led to a dramatic
drop in the birth and population growth rate, which has drastically altered Chinese society. This
policy meant that a majority of the members of Generation Y in China grew up in a single child
home, a phenomenon not only unique in Chinese history but the history of the world. A number
of societal changes can be traced to the implementation of the One Child Policy in 1980, which
will be discussed further in the theory and hypotheses section, but in order to understand the
potential societal factors leading to Generation Y’s increased consumption and decreased
savings, it is important to understand the Once Child Policy and its unique role in shaping
Generation Y in China.
Theory and Hypotheses
Theory: Chinese members of Generation Y consume more and save less than their parents, due
to a number of societal differences between this generation and the ones before it
My overarching theory is that Chinese youth consume more and save less than their
parents and grandparents, and that this trend will apply to all urban members of Generation Y. I
further theorize that this change in consumer behavior is driven by a number of distinct social
and cultural factors that are exclusive to this generation. The social and economic factors that
defined the China of their upbringing, including but not limited to China’s reemergence as a
global power, the massive spread of Western influence in the country, the increased standard of
living, urbanization, and the effects of the One Child Policy have given them a unique cultural
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identity which is driving this increase in consumption. I lay out what specific cultural factors are
driving this increase in consumption in hypotheses 1a through 1e, and while they are listed
separately it is important to note that they are not mutually exclusive.
Hypothesis 1a: The “little emperor” mentality resulting from the One Child Policy is causing
increased spending in Generation Y
Many Chinese children are referred to as “little emperors” by the Chinese media because
of the way they are often doted on by their families. As a result of China’s One Child Policy,
children in China are given the undivided attention of an entire family. In societies with multichild families, the attention towards children is often spread evenly. Parents with two children
will spend their time caring for the needs of both children. However, in a typical Chinese
household all the attention of both parents is directed towards the single child. This situation is
exacerbated for members of the current generation whose parents are also part of single child
families, this is often the case due to the high mortality rate of those in China who lived during
the disastrous Great Leap Forward, which resulted in an estimated 20 to 45 million deaths in the
three year period from 1958 to 1961 (Spence, 2013). In multi-child families, the attention of
grandparents is spread across many grandchildren. However, in China each grandparent is likely
to only have one grandchild, so parents and grandparents will dedicate their full attention and
oftentimes their full budgets towards one single child. The resulting family structure is termed a
4-2-1 family structure, denoting the four grandparents and two parents all raising the one single
child. This has led many in China to feel that the youngest generation of children is inherently
spoiled. Due to the fact that typical households often encompass three generations and parents
that do not live with their grown children tend to live relatively close by, each individual child in
essence has six caregivers (Chandler, 2004).
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My hypothesis is that this phenomenon has influenced the consumption and savings
patterns of Chinese members of Generation Y because having grown up as “little emperors” they
have grown accustomed to instant gratification from parents and grandparents and now as an
adult they instantly gratify themselves through excessive purchases of nonessential items leading
to extremely low rates of savings. I further hypothesize that members of Generation Y having
lived a relatively spoiled life are unable to transition to normal spending habits once they reach
adulthood and therefore spend their money recklessly.
Hypothesis 1b: A greater sense of economic stability has led to increased consumption
This hypothesis draws on the fact that this is the first generation of Chinese since the
founding of the People’s Republic of China to have grown up following the opening of the
Chinese economy and the end of Maoist economic policies. Therefore they have a greater sense
of economic security than older Chinese citizens because they have only lived in a bullish China.
The economic uncertainty that older generations were exposed to throughout the tumultuous
years of Maoist China could explain why despite their new middle class status they remain
relatively frugal (Ma and Yi, 2010). Older generations have experienced both economic booms
and disastrous economic downturns during their lifetimes and therefore tend to prepare for
economic hardship. As a result of the inadequate social safety net in China these individuals take
on a form of self-insurance by saving for potential future shocks (Latham, 2002; Chamon et al.,
2011).
However, Generation Y may be less concerned with the potential for adverse economic
shocks. The growth following the reform of the 1980s has drastically improved the standard of
living in China and a majority of Chinese now consider themselves middle class (46 percent).
This middle class status is all that many in Generation Y have ever known so it is reasonable to
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believe that they see themselves as financially secure and are therefore not afraid to spend to a
greater degree than their parents or grandparents (Fewsmith, 2007). They have grown up in a
China that is seen as an economic power with a bright future. This mentality could lead to their
belief that their economic wellbeing is relatively stable and that they do not need to save as much
for potential economic hardships.
Hypothesis 1c: The influx of advertising has led to Gen Y’s consumption increase
This is also the first generation in China to have grown up with a real consumer culture.
Individuals between 22 and 34 have been exposed to television, radio, internet, magazine, and
billboard advertisements their entire lives as these have steadily become the norm in China
following the introduction of Western goods as a result of the policies of Reform and Opening.
In 1980 total advertising expenditures in China across all media (print, television, radio, outdoor,
and web) was slightly over $30 billion, or barely 0.01percent of GDP, but by 2000 this number
dramatically increased to nearly 0.4 percent of total GDP (WFA, 2014; Saas 2011). Despite the
massive influx of advertisements during this period some research suggests that Chinese are
hesitant to trust claims made in advertisements and are much more likely to make purchasing
decisions off of the advice of friends. However, this data gathered in 2004 could potentially
represent the attitude of the older generations who did not grow up in a world of advertising
(Atsmon et al, 2010). It is understandable that when advertisements (both for Chinese and
international products) began to flood society that individuals were skeptical and therefore
unmoved by their claims and instead decided what they wanted to buy independently.
However, this new generation, having grown up with advertisements everywhere, may be
far less skeptical and therefore far more likely to be moved by advertisements. This could
therefore lead to an increase in impulse buying as they are convinced by advertisers that they
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need to buy something that they may not really need. Surveying individuals to understand their
relative trust for a number of products’ advertisements could reveal whether this generation is
more likely than others to trust advertising. The survey could also reveal whether those who trust
advertisements are more likely, less likely, or equally likely to consume. If they devote more of
their income to spending over savings when compared to those who are less trusting of
advertisements this could show a direct link between Generation Y’s trust of advertisements and
increased consumption.
Hypothesis 1d: The ease of consumption via E-commerce has led to increased consumption
This hypothesis follows a similar thought process as the previous hypothesis in that it
looks to Generation Y’s embracing of a new and powerful social phenomenon as a reason for its
increased consumption patterns. Although all members of Chinese society can theoretically use
E-commerce outlets equally those in Generation Y, having grown up with computers and the
Internet as an integral part of their lives, are likely more inclined to trust and feel comfortable
shopping online than older generations. E-commerce in China is a huge industry (with the largest
Chinese E-tailer Alibaba setting a single day sales record of $5.75 billion last year and issuing
the World’s largest ever IPO this September) and the relative ease of consuming online could
explain why there has been a relative surge in consumption for the youngest generation (Lajoie
and Shearman, 2014). Shopping can be done in class, on the subway, at home, or almost
anywhere else, and this ease could explain why individuals are consuming more. While younger
members of Chinese society embrace these new forms of consumption, those who are older are
less likely to understand technology to the same degree and therefore less likely to abandon the
tried and true method of shopping in person, which inevitably takes longer and as a result has a
greater opportunity cost making it less desirable.
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Hypothesis 1e: The One Child Policy has created new norms requiring men to spend more
The One Child Policy has had profound impacts on Chinese and one of the largest of
those impacts is the resulting gender imbalance in modern Chinese society. A study in 2001
reported that China’s sex ratio at birth (SRB) was 118, meaning that for every 100 females born
in China there were 118 males. This is significantly more than most developed countries, which
have an SRB around 105 (Poston and Glover, 2005). Due to the societal preference towards
having a boy many Chinese families would abort, abandon, or put their female children up for
adoption in order to have a male offspring. This has now led to a situation where there are an
estimated 23 million Chinese men who will be unable to find a Chinese bride (Poston and
Glover, 2005). As a result of this fierce competition in the marriage market, men may be
spending more in order to attract a future wife. Buying a car and an apartment are seen as
prerequisites for marriage in Chinese society so men are likely to spend on these goods to attract
a partner. They may also be buying other goods like clothing, jewelry, and watches to show off
their wealth and impress women or may be giving these goods as gifts in order to keep the
girlfriends that they have. All of these activities would lead to higher rates of consumption and
lower rates of savings for men in Generation Y.
Methodology:
Research Design
To understand whether urban members of China’s Generation Y save less than other
generations and to understand what factors might drive this difference, I looked at individuals in
urban areas who fall between the ages of 22 and 34. Since a majority of China’s population live
in urban areas (53.7 percent of the population live in cities) and since China is expected to
continue this urbanization process into the future (60 percent of the population are expected to
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live in cities by 2020), urban areas were an attractive choice as a geographical focus (Roberts,
2014). I further excluded individuals in Generation Y under the age of 22 because those in
school rarely have a real income, which makes it difficult to analyze their consumption and
savings habits relative to their incomes.
Data Collection
Most of my data was collected through surveys of individuals who fall into the age range
and geographic location mentioned above. I first wrote the questions in English in order to
ensure that I knew the exact questions that I wanted to ask. After writing my initial survey
questions I then translated the questions into Mandarin Chinese (as the primary language of my
target audience is Mandarin and I wanted to ensure that respondents were able to fully
comprehend the questions in order to avoid skewing any of my results because of
misunderstandings in language). Following my translation of the questions I consulted Chinese
language professors at Duke University and Boston University to ensure that my translations
were appropriate and would not lead to any confusion based on wording nuances or a
misunderstanding of certain characters. A copy of the survey, written in both Chinese and
English, is attached in Appendix I. A table listing my hypotheses and the questions designed to
gather data to test these hypotheses is shown below in Figure 1.
Figure 1: Understanding the survey’s role in proving hypotheses
Hypothesis
(1) Members of Generation Y are
saving less and consuming more than
the rest of Chinese society.
Survey Question
1.
2.
3.
4.
What is your age?
Where were you born?
Where do you live?
What percentage of your monthly salary do you
think you apply to the following categories:
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
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(1a) The “little emperor” mentality
resulting from the One Child Policy is
causing increased spending in
Generation Y
1.
2.
3.
4.
(1b) A greater sense of economic
stability has led to increased
consumption
1.
2.
3.
4.
5.
(1c) The influx of advertising has led
to Gen Y’s consumption increase
1.
2.
3.
(1d) The ease of consumption via Ecommerce has led to increased
consumption
1.
2.
Do your parents support you financially (or have
they recently supported you financially) with any
of the following expenses? (Check all that apply:
Rent/housing, food/essentials, clothing,
car/license payments, phone/electronics)
Are you a single child?
Do you consider yourself financially
independent?
What percentage of your monthly salary do you
think you apply to the following categories?
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
Would you consider yourself financially secure?
In your opinion in the next 10 years the Chinese
economy is likely to… (Choose one: improve,
remain stable, weaken)
In your eyes you are a member of the… (Choose
one: lower class, middle class, or upper class of
Chinese society)
Rank how secure you think your job is on a scale
of 1 to 10 (with one being not secure at all and 10
being very secure).
What percentage of your monthly salary do you
think you apply to the following categories?
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
Advertisements affect my purchasing decisions…
(Choose one: a great deal, some, only a little, not
at all)
On a scale of 1 to 10 (with one being very
unlikely and 10 being very likely) how likely are
you to trust the claims made in an advertisement
for the following categories:
Clothing/handbags, automobiles, food/basic
essentials, electronics, jewelry/watches
What percentage of your monthly salary do you
think you apply to the following categories?
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
Do you shop more online, in person, or around
the same?
How many online purchases have you made in
the last month in the following categories:
Quinn 19
3.
4.
(1e) The One Child Policy has created
new norms requiring men to spend
more
1.
2.
clothing/handbags, food/necessities,
watches/jewelry, electronics, and other.
What is your average online shopping bill/visit
for each of these categories?
What percentage of your monthly salary do you
think you apply to the following categories?
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
What is your gender?
What percentage of your monthly salary do you
think you apply to the following categories?
clothing/bags, food/necessities, jewelry/watches,
cars/car fees, electronics, housing/rent,
savings/savings account, other (please list)
The survey was administered over the Internet via a number of Chinese social media
websites as well as a series of email chains started by my former classmates, professors, and
colleagues in China and sent to their contacts throughout the country. It was also posted on the
social media sites Sina Weibo and Renren (the Chinese versions of Twitter and Facebook
respectively). Although this does not result in a truly random sample because of volunteer bias, it
was the most viable option to collect data given the constraints of my research.
Although most of my data comes from the survey responses, some of my data also comes
from existing data sources. Studies on the breakdown of income by age for Chinese citizens
compiled by the Survey and Research Center for Chinese Household Finance and a study on the
breakdown of E-consumers in China from the China Internet Network Information Center is
particularly helpful in testing Hypothesis 1b and Hypothesis 1d respectively. Links to these data
sets are provided in Appendices II and III.
Quinn 20
Observations
Chinese members of Generation Y have a lower rate of savings than Chinese society overall
The fundamental theory driving this thesis is that members of China’s Generation Y are
saving less and consuming more than the rest of Chinese society. China has a relatively high rate
of individual savings (29 percent) when compared to other nations (OECD, 2009; Ma and Yi,
2010; Chamon et al., 2011). This 29 percent takes into account Chinese of all generations from
the very young to the very old. However, the members of Generation Y that responded to the
survey had an average rate of savings of just over 10 percent, significantly lower (given an alpha
of 0.05) than the 29 percent observed for China as a whole, suggesting that the fundamental core
of my thesis is correct, members of Generation Y in urban areas are saving less than the rest of
Chinese society.
Instead of putting their money into savings, members of Generation Y spend a greater
portion of their salaries. The majority of their income is devoted to the purchase of food and
“daily necessities” (toiletries, household cleaners, etc.), which account for over 25 percent of
their expenses. Their second largest expense is on rent or home payments, which make up over
20 percent of their monthly expenses. The third largest expense is on clothing, however, that is a
much smaller 13 percent. The remaining 20 percent is spent on a number of other items, which
varied greatly from individual to individual but included eating out at restaurants, books and
school supplies, travel expenses, commuting costs and entertainment. On average, none of these
categories accounted for more than five percent of the total but they would often make up a
significant portion of one individual’s monthly costs.
Quinn 21
Figure 2: Distribution of Generation Y’s income as a percentage of total monthly income
Percentage Breakdown of Generation Y's
Monthly Income
30
Percentage
25
20
15
10
5
0
(1a) No observable distinctions in the savings rate between only-children and those with siblings
One of the potential theories of why this generation is consuming more and saving less
than past generations is as a result of the One Child Policy and the fact that members of this
generation are spoiled and have become “little emperors.” My theory was that this generation,
having been spoiled by their grandparents and parents in a 4-2-1 family structure, developed a
need for instant gratification and therefore consumes relatively more rather than saving money
for future purchases. The data, however, can not support this hypothesis. Respondents to the
survey were asked to list whether they were only-children or had siblings. When savings rates
were determined for the two groups, no significant difference existed between the two. The rate
of savings for only-children and individuals with siblings were both slightly over 10 percent. The
rate of savings was expected to be much lower for only-children than individuals with siblings
demonstrating their greater propensity to consume. Using a t-distribution there was not a
statistically significant difference between the two groups likely due to the small number of only-
Quinn 22
children in the sample size (15 respondents) so no conclusions can be drawn on the role of
siblings in Generation Y’s saving and consumption.
(1b) Economic stability and its effect on consumption
The literature suggests that economic stability can lead to greater consumption. For the
purpose of this piece, economic stability was assessed in three ways (1) an individual’s
perception on the likely path of the national economy (2) an individual’s perception of his or her
own job security and (3) an individual’s salary (with those with monthly salaries above RMB
5,000 considered in a stable economic condition). When each was evaluated it was clear that
higher salaries and a greater sense of national economic growth led to higher rates of savings
while one’s own perception of job security bore no significant correlation to savings rates.
When analyzing the results of the survey, job security seemed to bear little indication of
what consumption and savings patterns might exist for an individual. Respondents were asked to
rank their level of perceived job security on a scale from 1 to 10, with 1 being highly at risk and
10 being highly stable. When individuals were broken down into two groups, those who
perceived their jobs as stable (answered with a score between 6-10) and those who perceived
their job as less stable (answered with a score between 1-4), there was no apparent correlation
between the two groups and their savings rates or consumption levels. The difference in savings
rates between the two groups was less than one percent showing no clear signs of a difference in
savings rates or consumption between those who felt that they are secure in their jobs and those
who felt at risk. Furthermore, this generation did not feel overly confident about job stability. A
majority of individuals (63 percent) responded with a score between 1 and 5 representing low to
minimal confidence in the stability of their current jobs.
Quinn 23
Consistent with the economic literature, the more young Chinese earned, the more likely
they were to save and the lower their salaries, the less likely they were to save. Those with a
salary below RMB 5,000 per month had a savings rate of around nine percent compared to those
with a salary above RMB 5,000 a month who had a savings rate slightly above 12 percent, a 30
percent difference in percentage of income devoted to savings between the two groups. Those
with higher salaries can naturally save more as they have more disposable income to devote to
both consumption and savings than those with lower incomes. Members of Generation Y in
urban areas earn an average of RMB 5,000 less (or 13 percent less) than members of older
generations and members of Generation Y aged between 22 and 30 earn an average of RMB
8,600 less (or 22 percent less) than those in the older generations (China Household Finance,
2011). This demonstrates a clear income gap between young adults and middle-aged adults in
China, which could go a long way in understanding the low savings and relatively high
proportion of consumption for this generation.
An interesting addendum to this phenomenon was that individuals who thought that
China was likely to see sustained or increased economic growth over the next ten years saved
less than those who felt that the Chinese economy would weaken. Those who predicted stable or
increased growth saved five percent less of their total monthly income than those who saw
growth as likely to slow in the next decade. This is particularly interesting given the fact that
92.5 percent of respondents in Generation Y felt that the Chinese economy was likely to see
stable or increased growth. This relationship between trust in the national economy and lower
savings could be one of the factors driving down savings for the youth in China.
Quinn 24
(1c) Individuals’ reported susceptibility to advertising varies significantly from generation to
generation
Modern Western-style advertising in China only began once China started its market
liberalization reforms at the beginning of the 1980s. Despite its relatively short time in China,
Western style advertising has adapted and thrived in the Chinese marketplace. Celebrity
endorsements, billboards with airbrushed models, and marketing gimmicks are now just as
common in China as they are in the West. Despite the growth of these Western style
advertisements, their effectiveness in China has been called into question, specifically among
older generations. Chinese citizens tend to be more skeptical of advertisements and have less
faith and trust in large multinational corporations. In China individuals give a lot more weight to
the advice of friends and family on what products to buy than they do to advertisements, and are
also far less likely to develop brand loyalty (Atsmon et al, 2010). Despite these facts, there is a
chance that a shift in perception could have occurred between the older and younger generations,
the latter of which were more accustomed to this type of advertising as they grew up.
The data revealed that a correlation between one’s generation and one’s susceptibility to
advertisements does exist. Almost 70 percent of respondents from Generation Y reported that
advertisements had either a large effect or some effect on their purchasing decisions whereas 30
percent responded saying that advertisements had little or no effect at all on their purchasing
decisions. For those in the older generations the numbers were almost reversed. Of the
individuals older than 34, 37.5 percent reported that advertisements had a large or some effect on
their decisions to purchase certain goods where as 62.5 percent reported that advertisements had
either little effect or absolutely no effect on their decisions to consume. This clearly shows a
strong generational gap in terms of the effect of advertisements on Chinese consumers.
Quinn 25
Figure 3: Effect of advertisements on Generation Y compared to older generations of Chinese
Percent of Respondants
Effect of Advertising on Chinese Consumers
80
70
60
50
40
30
20
10
0
Generation Y Large Other Generations Generation Y Little Other Generations
or Some Effect
Large or Some
or No Effect
Little or No Effect
Effect
A correlation also exists between one’s self-reported susceptibility to advertisements and
one’s level of consumption. Those who reported that advertisements had either some effect or a
great deal of effect on their consumption behavior spent almost five percent more of their total
monthly salary than those who reported advertisements had little or no effect on their
consumption. The difference in average savings between the two groups was statistically
significant given an alpha of 0.1 suggesting that this generation’s increased susceptibility to
advertisements is one of the factors causing an increase in consumption and a decrease in
savings.
(1d) Generation Y accounts for a significantly larger portion of E-tail purchases but E-tail
purchases do not account for a significantly larger portion of Gen Y’s purchases when compared
to other methods of consumption
The Population Reference Bureau reported that Generation Y (those aged between 20 and
30 years old in their study) account for roughly 17 percent of the Chinese population (Haub,
2011). However, the China Internet Network Information Center, which gathers extensive data
on the Internet use of Chinese citizens from year to year, reports that of those who participated in
Quinn 26
E-Commerce transactions in 2012, 63.4 percent were between the ages of 18 and 30 years old
(Internet Network Information Center, 2013). Even taking into consideration the fact that those
who are aged 18 and 19 are not accounted for in Generation Y’s percentage of the population
above, 63.4 percent is a much higher number than would be expected and is statistically
significant given an alpha of 0.05.
Although the advent of E-commerce may be facilitating consumption for Generation Y, it
does not appear to be a driver in this increase in consumption. A vast majority of respondents (56
percent) report no preference in spending online as opposed to a physical location and 32 percent
actually reported preferring to make most of their purchases in person. A small minority (12
percent) reported strongly preferring E-tail purchases over purchases at a brick and mortar store.
To conclude that the advent of E-commerce was a catalyst for increased consumption, E-tail
purchases would have been expected to dominate purchases for this generation. Furthermore the
most common purchases made online were actually groceries and other daily items, which likely
would have been consumed regardless of whether or not the Internet existed.
Figure 4: Comparison of Generation Y’s size as a proportion of the Chinese population and as a
proportion of the E-commerce Market
Breakdown of China's
Population by Age
61%
22%
17%
Breakdown of China's
E-commerce Market by Age
1%
Age 19 and
younger
Age 18 and
younger
36%
20 to 30 years
old
63%
19 to 30 years
old
Age 31 and
older
Age 31 and
older
Quinn 27
(1e) No difference in savings rates between men and women
The final proposed hypothesis for why the savings rate for Generation Y in China was
much lower than other generations was attributed to the gender imbalance in Generation Y
caused by the One Child Policy. The One Child Policy has resulted in a gender imbalance with
far more men in Generation Y than women. In 2001 China’s sex ratio at birth (SRB) was 118,
meaning that for every 100 females born in China there were 118 males. This is much greater
than the average SRB for nations across the world, which is 105. This gender imbalance has
many repercussions one of which is a mismatch in terms of the marriage market leaving
significantly fewer potential brides than potential grooms. As a result men, who are expected to
have purchased a car and an apartment before being seen as eligible for marriage, could have
needed to spend much more and save less to compete in the marriage market, thus driving down
the generational average.
However, no significant correlation exists between gender and rate of savings for
Generation Y. The results of the survey show an average rate of savings for men in the sample at
10 percent and the average for women only a tenth higher at 10.1 percent. The difference
between them was not statistically significant likely, however, as a result of the fact that the
sample population of men was inexplicably low (11 respondents), therefore conclusions can not
be drawn as to any relationship between savings rates and gender in this generation.
Limitations
The small sample size is certainly a limitation to my research. The Chinese population is
1.3 billion and roughly 17 percent of the population is between 20 and 30 years old, or around
221 million people (CIA, 2014; Haub, 2011). My sample population was only 70 individuals
Quinn 28
from this extremely large group. In the future, further research on the subject with a much larger
sample size would certainly lead to even more conclusive results. A further limit to my research
is the geographic distribution of my respondents. I had originally wanted to break down my
sample population by city to see if there were differences in the saving and consumption patterns
of individuals from one city compared to another. However, I did not end up receiving enough
responses from any one city to test the patterns from one city compared to others. Future
research on the consumption and savings patterns of individuals in one city versus another could
also potentially lead to interesting insights.
Conclusions
Urban members of Generation Y save a great deal less and spend more of their incomes
than the rest of Chinese society overall. This undoubtedly has broad implications for the Chinese
government, IGOs, and multinational organizations that are planning their future growth around
the consumption of this generation. In the aftermath of the Global Financial Crisis, China has
struggled to maintain the breakneck economic growth to which it had grown accustomed over
the previous decades. At 7.5 percent, its growth rate is still much higher than the rest of the
world but this is low by Chinese standards and has only been maintained through a massive
government stimulus effort (Rabinovich, 2013; Qi, Magnier, and Yap, 2014). The Chinese
government has recognized the instability of this growth as it has announced and continues to
speak of the need to switch from an export-driven growth model to one based on domestic
consumption. This is certainly a challenging transition for a country that is still in the midst of
rapid economic development and all the more daunting given China’s historically high savings
rates.
Quinn 29
Therefore, the knowledge that these extremely high savings rates do not apply to
Generation Y provides hope for the CCP’s new plan for future growth. If Generation Y carries
these savings and consumption patterns into later adulthood, the government can take a less
active role in pursuing its new growth model. This will be especially true if Generation Z (the
generation after Generation Y) exhibits similar savings and consumption characteristics, thus
representing a larger cultural shift in China. The central government can also study Generation Y
and the drivers behind their lower savings and higher consumption to effectively design policy to
try and create an environment that will spur on consumption for the rest of Chinese society.
However, if members of Generation Y could begin to save more in their later lives, and the
observed increase in spending found in this paper would only be a minor phase of their lives.
This would suggest that China could potentially be falling into the lifestyle hypothesis, which
describes savings rates for developed nations as a hump.
Past research has shown a flattening of the lifetime savings curve for members of Chinese
society (Chamon et al., 2011). This phenomenon could be a sign of China’s transition into a lifecycle hypothesis pattern of savings where an individual’s lifetime savings rate is hump-shaped
representing low savings in early adulthood and old age and increased savings during middleaged years. This would be an extremely significant transition, as it would mean that Chinese
citizens are beginning to consume similarly to consumers in developed nations. This would be a
positive sign for China because developed nations’ economic growth models are strongly based
on individual consumption. Thus, if Chinese citizens begin to consume similarly to citizens of
developed nations, it is likely that the CCP can successfully carry out its planned transition to an
economic growth model less reliant on exports and investment and more reliant on individual
consumption.
Quinn 30
While some of the hypotheses as to what social factors are driving the lower rates of
savings and higher rates of consumption for Generation Y were supported by this study, none
proved to be the definitive driver of this trend. Lower incomes, the belief in promising economic
growth, and the increase in advertisements in China as well as this generation’s increased
susceptibility to these advertisements all showed strong correlations to lower rates of savings and
higher rates of consumption, yet none singlehandedly explained why this phenomenon exists.
If China’s strong pace of development continues, these factors will likely persist into the
future and suggest a continued trend of lower savings and higher consumption for Generation Y
and subsequent generations. Advertisements are unlikely to disappear from China and with the
advent of new media such as mobile applications, their prevalence is even increasing. This
means that the generations that succeed Generation Y will grow up under similar circumstances
in regards to a marketing environment that promotes consumption. However, this is not a
guarantee as a number of potential high profile corporate scandals, similar to the tainted infant
formula scandal of 2008, could erode public confidence in large multinational corporations and
their advertising claims. A situation such as that could cause a shift in individuals’ trust in
advertisements and therefore decrease the effect advertisements have on savings (Ramzy and
Yang, 2008).
Similarly, since a correlation was found between an individuals’ belief in future
economic growth and lower rates of savings, as long as China’s growth continues into the future,
the effect that this has on savings for Generation Y and younger generations is likely to continue.
The Chinese government has made it clear that economic growth remains a national priority as
evidenced through the number of stimulus packages approved in the wake of the Global
Financial Crisis. However, economic growth has been slowing in China over the past decade and
Quinn 31
even high growth rates compared to Western standards could appear as weak to Chinese citizens
who have grown accustomed to growth above nine percent per year. A lack in confidence in
future growth could lead to an increase in savings as future prosperity begins to wane. This
would not only decrease the consumption in Generation Y but it could also decrease
consumption in future generations who, unlike Generation Y, may not grow up in a period of
miraculous growth. Individuals in these subsequent generations may view the Chinese economy
as destined for both booms and busts, which they must prepare for through self-insurance and
savings.
While the continuation of strong confidence in China’s future economic growth and high
susceptibility to advertisements are not certain, barring major adverse events, they appear likely
to continue into the foreseeable future. The continuation of these trends would suggest that
Generation Y’s lower savings rates will also continue and that subsequent generations, who will
be exposed to these same phenomena as they grow up, will have lower savings rate compared to
Chinese citizens born before 1980. This would be extremely significant for the CCP, which will
rely on Generation Y and future generations to increase consumption as they try to encourage a
shift away from the growth model of the past 35 years in favor of their new model, which
promotes individual consumption and seeks to push China into its future as a developed country
and global superpower.
Quinn 32
Appendices
I.
Survey in English with Mandarin Chinese translations
1. What is your age?
你多大年纪了? ／你今年多大？
2. What is your gender?
你的性别是什么？
3. Where do you live?
你住在什么城市？
4. What is your monthly income?
你的月收入多少？
5. What is your average grocery bill?
什么是你的平均杂货账单？／你每个月的消费支出大概多少？
6. How often do you go to the grocery store in a month?
你多久去杂货店一个月？/你一个月去杂货店几次？你多久去一次杂货店？
7. How many times a month do you buy clothes?
你一个月买几次衣服？
8. How many new electronic devices have you bought over the last year?
过去一年中你买了多少新的电子设备用品？
9. How many times a week do you eat at a sit-down restaurant?
你每周去比较正式的餐馆吃几次饭？
10. What is the most expensive purchase you’ve made in the past year? How much?
Quinn 33
在去年你所购买的东西中，什么东西最贵？大概多少钱？
11. Do your parents support you financially (or have they recently supported you financially)
with any of the following expenses? (Check all that apply: Rent/housing, food/essentials,
clothing, car/license payments, phone/electronics)
你的父母在以下哪些方面仍然给你提供经济上的帮助，
租金/买房、食品/日常必需用品、服装、汽车/牌照费，电话/电子产品
12. Are you a single child?
你是独生子女吗？
13. Do you consider yourself financially independent?
对你来说你有没有财政独立？/ 你认为自己在经济方面已经独立了吗？
14. Is relying on your parents financially an acceptable practice?
你觉得社会应该接受的孩子依靠他们的父母的钱吗？/在经济方面靠父母是否为社
会大众所认可？
15. Would you consider yourself financially secure?
对你来说你有没有经济安全？/你认为自己已经经济独立了吗？
16. In your opinion in the next 10 years the Chinese economy is likely to… (Choose one:
improve, remain stable, weaken)
在你看来，未来 10 年，中国经济很可能…(提高/更加进步，保持稳定，削弱)
17. Would you be prepared for a personal financial crisis? If yes, how?
你做好准备有一个个人的财务危机？/你对个人的经济危机有没有做什么准备？ 如
果答案是肯定的，你怎么做准备？ ？
Quinn 34
18. In your eyes you are a member of the… (Choose one: lower class, middle class, or upper
class of Chinese society)
对你来说你的一员。。。（中国社会的底层、小中产、中产阶级、还是中国社会的
上层阶级）
19. Rank how secure you think your job is on a scale of 1 to 10 (with one being not secure at
all and 10 being very secure).
你如何安全的认为你的工作是对的规模为 1 到 10.
20. On a scale of 1 to 10 (with one being very unlikely and 10 being very likely) how likely
are you to trust the claims made in an advertisement for the following categories:
-Clothing/handbags, automobiles, food/basic essentials, electronics, jewelry/watches
以 1-10 为评判标准，‘1’表‘完全不信任’， ‘10’表‘完全信任’。你对下
列广告所做的产品宣传的信任度有多高？
服装/手提包，汽车，食品/日常必需用品，电子产品，珠宝/手表
21. Advertisements affect my purchasing decisions… (Choose one: a great deal, some, only
a little, not at all)
广告影响你的购买决定......（只选一项：很大，有一些，只有一点点，一点都没
有）
22. In the past month how many times have you impulse bought… (defined as buying
something having had no previous intention of buying it)?
在过去的一个月你有几次冲动性购物（ 冲动性购物”定义：买你不需要的东西）
23. Do you shop more online, in person, or around the same?
你常在哪儿购物？（选择一项）网上、商店、两种方式平均
Quinn 35
24. How many online purchases have you made in the last month in the following categories:
clothing/handbags, food/necessities, watches/jewelry, electronics, and other.
上个月你花了多少钱在线在以下类别进行？ 服装/手袋，食品/用品，手表/珠宝，
电子等：
25. What is your average online shopping bill/visit for each of these categories?
你的平均网购账单为这些类别什么是？
26. What percentage of your monthly salary do you think you apply to the following
categories?
百分之多少的你的收入是花在这些类别？
II.
Link to Data from the Survey and Research Center for Chinese Household
Finance
http://www.statista.com/statistics/304731/china-average-annual-income-byage-and-residency/
III.
Link to Data from the China Internet Network Information Center:
http://www1.cnnic.cn/IDR/ReportDownloads/201302/P02013022139126996
3814.pdf
Quinn 36
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