Evaluation of the Factors Influencing Consumer Disposable Incomes in China - Coursework Example

AN EVALUATION of THE FACTORS INFLUENCING CONSUMER DISPOSABLE INCOMES IN CHINA Keywords: Consumer Disposable Income Table of Contents Table of Contents 2 Introduction 3 Comparison of China’s Consumer Disposable Income 3 Wages (percentage change) 4 Consumer price inflation 4 Oil prices 5 Taxes 5 Problems of deflation 5 Conclusion 7 References 9 Introduction Consumer Disposable Income (DPI) constitutes the amount of funds that households have in their possession for spending, as well as saving after their income taxes have been accounted for (Bolton 2015). Thus, Disposable personal income is usually under observation by economists as one of the various key economic indicators considered for gauging the overall financial condition of an economy (Hubbard et al. 2012). Conversant with disposable income, China is prominent for its excellent performance and different measures related to the well-being from its global ranking (Petrarca & Ricciuti 2015). The associating rankings are adjacent to the standard averages as per several topics involving Better Life Indices. China’s DPI for its citizens is considered by subtracting every individual’s income liable to taxation. In this paper, the goal will be to discuss, as well as evaluate China’s factors that pose an impact on the nation’s DPI over time. Existing literature in regard to the previous DPI performance of China will provide brief distinguishing points for a valid assessment. However, it is worth to understand that China’s DPI reports are conducted by the National Institute of Statistics (Anon. 2015) Comparison of China’s Consumer Disposable Income From the recent data (Anon. 2015), China’s DPI realized an increase of 5,000 YEN million in its 2014 fourth quarter. From this data, the DPI in China possesses an average of 247434, with 71 YEN million from 2012 until 2014, exhibiting an all period high value of 27703 million in the year 2012 (Anon. 2015). The figure below shows China’s Disposable Personal Income from 2012 to 2014. China’s Disposable Personal Income for the period 2012 to 2014 Source: National Institute of Statistics Wages (percentage change) Conversant with the employment factor, individuals within the age of 15-64 in China have paid jobs below the OECD’s employment averages of 65% (Petrarca & Ricciuti 2015). Thus, 68%, as well as 48% in respect to men and women, are involved in paid jobs (Petrarca & Ricciuti 2015). Another key measure involves the number of people engaged in working for long hours. China shows that 4% of workers participate in long hour works/jobs, which is less than OECD’s average of 9% (Petrarca & Ricciuti, 2015). Consumer price inflation The recent consumer price inflation (Petrarca & Ricciuti 2015) increased China’s consumer spending, evidenced from consumers’ engagement in acquiring luxurious products/goods within their household (Guo 2011, p. 185). This measure assists in assessing how alterations in the consumers’ price inflation would affect their spending on luxurious goods/products; thus, promoting the country’s financial ability (Schnepf 2013). Oil prices According to the recent data (Anon. 2015) oil price rating stood at 1.8 £/Litre. This value in comparison to the previous ratings exhibits a decrease in the purchasing power of consumers due to deflation of China’s oil prices (Atsmon & Magni 2012). Thus, most consumers tend to wait for appropriate periods for oil prices to reduce; hence low prices encourage more customers to engage in the purchase of goods (Petrarca & Ricciuti 2015). Taxes Taxes are used to gauge a DPI’s household rates of saving, as well as spending. Highly imposed taxes reduce the saving capability of individuals over time (Petrarca & Ricciuti 2015), for instance, in a case where an individual’s income constitutes of £ 100,000 from the earned salary with an imposed tax rate of 35%. Thus, such a persons household disposable income would be £65,000; the difference between £100,000 and £35,000. For this reason, it is worth to argue that heavy taxation is linked to low opportunities for China’s citizens to exploit their spending extremes (Petrarca & Ricciuti 2015). Problems of deflation Deflation is the negative rate of inflation that portrays an appreciation in the value of funds rather than depreciation. Deflation experienced by a nation is not intrinsically bad. However, often periods associated with deflation can cause economic stagnations, as well as a high rate of unemployment (Petrarca & Ricciuti 2015). In fact, deflation discourages spending due to the future speculations of cheaper prices of products. As such, it can result in real debt burdens and reduce the spending power of firms and consumers. During the earlier periods, deflation appears to be rationally rare. But from the recent study by Petrarca & Ricciuti (2015), most Asian nations have been experiencing inflation. These periods were associated with economic depression. Conversant with deflation, ii is often perceived as damaging in the sense that it could exacerbate economic downturns, resulting in higher unemployment. For this reason, deflation is associated with several discouraging issues to any given economy that include discouragement in consumer spending, increase in real debt values, as well as real interest rates and real wage unemployment (Petrarca & Ricciuti 2015). Conversant with discouraging consumer spending, falling prices usually encourage purchase delays of consumers since they speculate about cheaper future prices that they expect to encounter. In this regard, deflation discourages customers from buying luxurious goods and items such as flat screen televisions since they are aware that they could save their money while waiting for the right period when goods could be cheaper (Atsmon et al. 2011). With such experience within the nations trading markets, it results in a fall in the consumer spending. Such a country is vulnerable to higher deflation levels (Petrarca & Ricciuti 2015). Subsequently, deflation increases the real values of money, as well as the actual values of debts, making it more sophisticated for debtors to meet their obligations. This indicates that consumers, as well as organisations, must spend higher percentages of their disposable income to meet their debt repayments (Petrarca & Ricciuti 2015), leaving insufficient funds for spending, as well as investment. Conversant with the disrupted funds, this poses a problem in balance sheets’ recessions where organizations and consumers try to diminish their vulnerabilities to debts. A case in point is the Asian nations exhibiting enormous burdens in relation to government debts; deflation makes it difficult to minimize their obligations to the GDP ratios (Petrarca & Ricciuti, 2015). Deflation increases the real interest rates; thereby, the interest rates cannot fall below zero. Therefore, an increase of 2% in a country’s deflation rate means an increased value of 2% of the country’s real interest rate (Petrarca & Ricciuti, 2015). This shows how deflation is capable of contributing to unexpected strictness of the monetary policies, making it a particular problem for most Asian nations that lack a recourse to other fiscal policies such as quantitative easing, which diminishes growth levels while increasing unemployment levels (Guo & Wu 2013, pp. 218-222). Real wage unemployment also stands out as a problem brought about by deflations (Petrarca & Ricciuti 2015). The labor markets will often portray sticky wages of which most workers will tend to resist due to the linking wage cuts. Conversant with the sticky wages, it is positive to mention that no person would agree to see their salaries being cut. Furthermore, such individuals are familiar to yearly increases in their pays (Petrarca & Ricciuti 2015). For this reason, it is noteworthy to point out that this could result in real-wage unemployment of which is considered as a major problem across Asia. Conversely, deflation makes it more sophisticated for adjustments in the relative prices, as well as wages (Petrarca & Ricciuti 2015). A case in point hold where an increase in the average prices and salaries by 4% will pose that it would be easier for some products/goods to increase by 0%, as well as some to elevate by 8%. Thus, with a 0% inflation rate, it would be hard to acquire the relative alterations in the prices and wages (Petrarca & Ricciuti 2015). Thus, deflation pose as a real factor in the accounts where associated prices appear to be falling as an individual’s disposable income rises. In this context, most people including the net savers exhibit a relief during such periods of deflation (Ma & Yi 2010). However, the main obstacles remain in a macroeconomic perspective of recession, as well as unemployment (Petrarca & Ricciuti 2015). Besides, even during the periods of low inflation; an economy still gets to encounter increased real burdens, as well as tight monetary policies and difficulties in adjusting the wages and prices (Petrarca & Ricciuti 2015). Conclusion This paper aimed at evaluating factors that affect China’s disposable income. In the course of this analysis, positive disposable personal income exhibits a real financial state of the country. However, deflation may be an inhibiting factor, but this does not deter an economy from showing attractive performances. Thus, key finding proves that living in luxurious housing conditions provide a significant aspect in individuals lives (Chen 2013). Hence, housing is important to meeting every individual’s needs (Petrarca & Ricciuti 2015). Subsequently, money cannot buy happiness; however, it provides a means of acquiring higher living standards. Thus, a strong economic wealth enhances efficient access to quality education, as well as health care and housing. Conversant with the main topic of factors affecting China’s Disposable Income, wages as well as other monetary benefits associated with employment are significant aspects pertaining to job qualities (Petrarca & Ricciuti 2015). Thus, reducing vulnerabilities to high risks facing the workers can facilitate the realization of employment securities. From this reason, DPI is a significant measure when it comes to assessing a nation’s financial performance (Petrarca & Ricciuti, 2015). References Anon., 2015. World Data Atlas. [Online] Available at: HYPERLINK "http://knoema.com/atlas/China" http://knoema.com/atlas/China [Accessed 6 March 2015]. Atsmon, Y., Dixit, V., Leibowitz, G. & Wu, C., 2011. Understanding Chinas Growing Love for Luxury. Technical paper. Sydney: New Mdia Australia Mckinsey & Company. Atsmon, Y. & Magni, M., 2012. Meet the Chinese consumer of 2020. McKinsey Quarterly, March. Bolton, S., 2015. Why Macau’s Visitors Have A Higher Gambling Appetite. [Online] Available at: HYPERLINK "http://marketrealist.com/2015/01/macau-visitors-higher-gambling-appetite/" http://marketrealist.com/2015/01/macau-visitors-higher-gambling-appetite/ [Accessed 9 March 2015]. Chen, G., 2013. Contemporary Chinese Luxury Consumerism. ChinaHandsMagazine. Guo, L., 2011. 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