Poor households bypass basic needs, jockey for social position
China has long been in the throes of demographic, economic and social change, with massive rural-to-urban migration, a growing middle class, and an emerging culture of entrepreneurship. In China’s rural communities, it is increasingly common to find lavish spending on weddings, festivals and gifts. A new IFPRI discussion paper documents this recent spike in conspicuous consumption and examines the implications for Chinese society.
In poor regions throughout the world, many households exhibit high levels of spending on large weddings, funerals, festivals, gifts, and tobacco or alcohol consumed in public settings. Because this behavior is highly visible, it often reaps social status and is termed “positional spending.” It may stem from the desire to improve one’s social position, to conform to evolving social norms, or to build informal risk-sharing communities through the exchange of gifts.
Based on IFPRI’s household survey of several villages in Guizhou, the country’s poorest province, senior research fellow Xiaobo Zhang and co-authors Philip H. Brown of Colby College and Erwin Bulte of Wageningen University assessed the social spending of poor households. In recent years, socially observable spending has increased much faster than income, a striking change in a society known for its high rate of household savings. Between 2004 and 2006, per capita consumption grew by 13 percent per year. While the share of expenditures allocated to food dropped from 48 to 42 percent, the share of spending on gifts and festivals soared from 8 to 14 percent. Spending on funerals and weddings similarly swelled, and in 2006, the average wedding cost for the groom’s family was approximately 5.5 times the per capita income.
Poor households in the study increased their conspicuous spending when there was a greater density of similarly poor people in the village, suggesting that they splurged publicly to compete for status. Wedding expenditures seemed to be positional only for the grooms’ families, probably because men must compete more intensely as the country’s skewed sex ratio makes brides increasingly scarce. This may also have driven up China’s savings rate, as Zhang and Shang-Jin Wei of Columbia University suggested in 2009.
Managing a household budget is a matter of trade-offs, and money spent on positional goods is not available for food, health care, or productive investments. Researchers note that conspicuous spending could hinder China’s efforts to reduce poverty among rural households living close to subsistence.