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Simple logic tells us that Chinas domestic consumption is seriously understated. This is due in part to the difficulties in moving from the accounting system used during Chinas central planning period to one used in market economies. As noted by Chinas National Bureau of Statistics, more work is still needed to incorporate informal activities, non cash transactions and the rising costs of housing services into the official GDP figures. Adjusting for these statistical discrepancies might account for about half of the unusually low consumption to GDP ratio, with the rest explained by the declining share of household income as a share of GDP. While much attention has been given to how financial repression, in the form of exceptionally low interest rates paid to savers, has reduced household incomes and thus consumption, this has accounted for only a fraction of the decline in the share of income to GDP over the past decade. Far more important has been the structural shift of workers from rural to urban activities and within the urban areas.

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