Consumer behaviour
First, with the widening of the income gap, consumer behaviour becomes more diversified. Second, following the increase in supplies, people can choose whatever commodities and services they want. On the other hand, the consumer price index has been falling in recent years. As the prices of big-ticket items such as large-screen colour TVs, VCDs and computers continue to drop, people are putting off their buying decisions and are adopting a wait-and-see attitude. Moreover, the market economy has heightened people's awareness of the need to invest and to take precautions against risks. In addition to pension contributions and medical and unemployment insurance premiums, people are reserving part of their income for investment. This explains the decline in certain areas of current consumption.

High prices
In recent years, housing, car and computer are dubbed the "new three hot items", or commodities most sought after by consumers in China. However, demand is stifled by their high prices. Among the three, housing and car are unlikely to grow in popularity in the next few years.

Lack of consumer Confidence
The expected drop in income and rise in expenditure of urban residents in the near future seriously erodes consumer confidence and directly hits consumption. While the growing phenomenon of "layoffs" has made many people worry about their job security and source of income, new measures introduced in the medical, pension, housing and education systems have increased people's expenditure at a rate faster than their income growth. As their anticipated expenditure increases, people are cutting down on their personal spending either wittingly or unwittingly out of an awareness of the need to save for rainy days. Even if they have the money, they would put it in the bank rather than spending it recklessly.

Deflation dampens consumer sentiment
In 1998, commodity retail prices and consumer prices dropped by 2.6% and 0.8% respectively from the previous year. The price fall continues into 1999. The cumulative fall in retail prices and consumer prices in the January-February period of 1999 was 2.8% and 1.2% respectively compared with the same period a year ago. They dropped by 2.9% and 1.4% respectively in January-March and by 3.1% and 1.6% respectively in January-April. The negative growth in prices for 19 consecutive months shows that deflation is continuing. Many people are putting off their spending in the face of deflation.

Traditional concept restrains spending
The Chinese people have been taught since their childhood that they should live within their means and should avoid running into debts. Unlike westerners who are used to credit spending, they live thriftily and do not spend what they have not earned. At present, only about 5% of China's urban residents use consumer credit offered by banks. The majority of people still think that they should not spend beyond their means. The absence of a well-established consumer credit policy and the harsh borrowing terms and cumbersome procedures are also stifling the growth of credit spending.

Savings, marginal consumption declines
Between 1981 and 1997, Chinese urban residents' propensity to consume (the ratio between total consumption and total income) could be divided into two stages: (1) the high level stage between 1981 and 1988 when the propensity to consume increased from 0.91 in 1981 to 0.93 in 1988; (2) the rapid decline stage between 1989 and 1997 when the propensity to consume rapidly fell from 0.93 in 1988 to 0.81 in 1997, with the rate of decline in the marginal propensity to consume starting to accelerate in 1995. This was reflected in the steady increase in urban savings deposits. Although the Bank of China has lowered interest rates on six occasions in a bid to stimulate consumption, savings deposits continued to rise.

Savings deposits in China increased by 29.6% over the previous year to RMB3,821bn in 1996, by 19.3% to RMB4,628bn in 1997, and by 17.1% to RMB5,340.7bn in 1998. The desire to save is still going strong.

Changes in consumer habits
Convenience and time saving
As China becomes more open and comes into closer contact with the world and as commercial activities continue to grow, more and more people are beginning to value their time and go after higher efficiency. As a result, fast food and frozen food are welcomed by busy workers. Clothing with zippers instead of buttons, slip-on shoes, disposable table cloth as well as home electrical appliances that make household chores easier are becoming hot-selling items. More people are using taxis and private cars in addition to public transport to get around. Letter writing is replaced by phone calls, and telegraphs are replaced by faxes. Pagers, mobile phones and email have become part of people's everyday life.

Better quality of life
Chinese people's concept of living has changed from merely seeking shelter to finding a spacious, comfortable and nice place to live in. An ideal living environment is now seen as an important aspect of a quality life. Over the last 20 years, there has been a marked increase in people's living space and people are also paying more attention to decorating and modernising their homes. And as their basic needs are satisfied in quantitative terms, they begin to pursue a higher level of satisfaction, such as going after social equality, ecological balance, fresh air, a clean and tidy living environment, as well as dignity and fun in life.

The Chinese government assigns great importance to environmental protection and the maintenance of ecological balance. It also pays attention to the ecological environment of the densely-populated areas. The development of the tertiary industry has brought better and more convenient services to the people, and efforts have also been made to enrich people's cultural and spiritual life. All these have greatly improved the quality of life.

Diversity and individuality
With the development of the commodity economy, consumer goods are now available in ever increasing varieties and designs and new products are constantly introduced into the market, offering consumers with more choices. Clothing is no longer just something to cover the body or to keep warm, but something to look nice in. In the place of dull coloured Mao suits in the early days are now garments of various colours, fabrics and styles for different ages, different genders, different body frames, different seasons and different tastes. People are paying increasing attention to design and quality. In addition to comfort, convenience and practicality, people are also looking for style, taste and individuality in what they wear. Some consumers are also becoming more brand conscious in their choice of clothes and durable consumer goods, and tend to buy expensive brand name products of good quality. At the same time, as more cultural and recreational facilities are available and as people have more time to spare, life after work also becomes richer and more interesting.

Personal development
Chinese consumers are now aware of the importance of education and culture to man's development and are beginning to go in quest of knowledge and science. There has been an educational upsurge in China since the 80s. On the one hand, full-time institutions of higher learning and technical schools are enlarging their enrolment while on the other, marked progress has been achieved in adult education. Distance learning through TV and correspondence, evening universities and all kinds of short-term training programmes are offered all over the country. Getting a diploma or acquiring a special skill has become a must in the highly-competitive modern society. Out of this grows the demand for a fuller life. More families are now buying books and ordering newspapers and magazines. Sales of electronic organs, violins, accordions and even expensive pianos are growing. Watching TV and movies, listening to music, reading books and newspapers and going away on holidays have become a way of life for many families. In the rural areas, people are also attaching greater importance to their spiritual and cultural life. Illiteracy has been gradually reduced. The establishment of cultural centres in many places has enriched people's life.