Commentary: Drop in proportion of income spent on food indicates Chinese residents are now wealthier

China’s Engel’s coefficient dropped to 29.3 percent in 2017 to hit the well-off line of 20 to 30 percent set by the UN, according to the National Development and Reform Commission in a recent report.

This reflects the country’s consumption upgrades as well as unbalanced and inadequate development.

The Engel’s coefficient, which measures food expenditure as part of total household spending, is regarded as a direct indicator of a family’s or country’s wealth. Spending 70 percent on goods that indicate a consumption upgrade, such as travel, telecommunication appliances and sports products shows that Chinese residents are becoming better-off.

Consumption of Chinese residents have upgraded from goods to services, from offline services to the integration with online services and from popular consumption to tailored services.

The upgrades reflect the increase of durable consumer goods as well as a drop in their prices, the continuous development of the service industry and the unstoppable progress of internet economy.

The coefficient offers a window to see the positive interaction between supply and the demand. China has the world’s largest middle-income group, and these earners are better-educated and have a stronger demand for high-quality goods and services. This will provide an important opportunity to push forward the supply-side structural reform.

However, in China, other factors such as psychological diversity, dual urban-rural economic structure and unbalanced development all affect the accuracy of the coefficient.

For instance, as some economists have observed for years, young people in east China’s Hangzhou opted to spend more money on food, even after they became better-off, causing the Engel’s coefficient to rise.

The love for food and the willingness to pay for food of Chinese people is a factor that makes the Engel’s coefficient unable to truly reflect the consumption structure of the country.

The falling of the Engel’s coefficient is also related to the low prices of farming products. The low food expenditure is related to controlled prices of agricultural products, which actually means lower income for farmers.

An annual report on the Engel’s coefficient in Ningxia in northwest China indicates that though the Engel’s coefficients for urban and rural residents there in 2016 were 24 percent and 26.74 percent respectively, some people still lived in poverty.

China should take pride in the low Engel’s coefficient, but the reality is that there is still a heavy task to build a moderately prosperous society. An economic indicator is not able to cover complex realities, and focusing on the sense of gain of everyone is more realistic.