The effects of online consumer credit on household consumption level and structure: Evidence from China

• Published date: 01 December 2021
• Author: Jie Li,Quanyun Song,Yu Wu,Bihong Huang
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/joca.12390

SPECIAL ISSUE

The effects of online consumer credit on

household consumption level and structure:

Evidence from China

Jie Li

1

| Quanyun Song

2

|YuWu

3

| Bihong Huang

4

1

Research Institute of Economics and

Management, Southwestern University of

Finance and Economics, Chengdu, China

2

School of Finance, Southwestern

University of Finance and Economics,

Chengdu, China

3

Survey and Research Center for China

Household Finance, Southwestern

University of Finance and Economics,

Chengdu, China

4

Monetary and Capital Market

Department, the International Monetary

Fund, 700 19th St, N. W.,

Washington, D.C., United States

Correspondence

Quanyun Song, School of Finance,

Southwestern University of Finance and

Economics, Chengdu, China.

Email: squanyun@swufe.edu.cn

Funding information

the 111 Project, Grant/Award Number:

B16040; National Natural Science

Foundation of China, Grant/Award

Number: 71903160; the Fundamental

Research Funds for the Central

Universities, Grant/Award Number:

JBK2101004

Abstract

Using data from the China Household Finance Survey

(CHFS) in 2017, this paper examines the association

between access to online consumer credit and house-

hold consumption. We find that online consumer credit

has a significantly positive relationship with household

consumption. Heterogeneity analysis shows that the

relationship between online consumer credit and

household consumption is more obvious among poorer

households and households resided in less developed

areas, which partially reflects the inclusiveness of

online consumer credit. Further analysis shows that

online consumer credit mainly increases the expendi-

tures of large-sum and non-daily items, which suggests

that online consumer credit has promoted consump-

tion upgrading of households.

KEYWORDS

household consumption, household heterogeneity, online

consumer credit

This research was carried out when Dr. Bihong Huang was the Economist at the Asian Development Bank Institute.

The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its

Executive Board, or IMF management.

Received: 31 October 2019 Revised: 9 April 2021 Accepted: 17 April 2021

DOI: 10.1111/joca.12390

© 2021 American Council on Consumer Interests.

1614 J Consum Aff. 2021;55:1614–1632.wileyonlinelibrary.com/journal/joca

1|INTRODUCTION

Access to finance has been proved to play an important role in improving household wel-

fare, especially for households in developing countries and rural areas (Mookerjee &

Kalipioni, 2010; Song et al., 2020). However, with the rapid penetration of information

technology, the pattern of access to finance has changed a lot. Online consumer credit

platforms have largely facilitated households' access to finance because it breaks through

the traditional geographical restrictions and timerestrictionsofcredit(Hanetal.,2019).It

not only increases the convenience of consumer credit, but also reduces the access thresh-

old of users (Pierrakis & Liam, 2014). Despite the rapid development of online consumer

credit market, less is known about how access to online consumer credit affects

consumption.

Some researchers hav e discussed the effect of consumer credit on household consumpti on

from the perspective of the credi t card. Gross and Soulele s (2002) show that the inc rease of

credit card limits wil l promote individuals ' consumption by using c redit card level data. Us ing

household-level da ta, Ekici and Dunn (2010 ) show that there is a negati ve correlation betw een

delayed credit card debt and consumption. Ponce et al. (2017) find that individuals are willing

to pay higher interest to maintain credit card debt in order to maintain liquidit y, which proves

the significance of co nsumer credit. Credi t card customers are most ly high net worth cus-

tomers, while online co nsumer credit is more tar geted at ordinary custo mers, especially low -

income and young peopl e. Thus, in this paper, we pl an to evaluate the associ ation between

online consumer credit and household consumption. China provides a compelling setting for

exploring this questi on. With the penetrat ion of Fintech, online c onsumer credit such as Ten-

cent Weili Loan,JINGdong Baitiao,andAnt Huabei has emerged as a new force and expands

rapidly in China, with its scale rising from 18.7 billion RMB in 2014 to 9.1 trillion RMB

in 2018.

Using a large and representative household level data set, the 2017 China Household

Finance Survey (CHFS) data, we show that total consumption is much higher among house-

holds that have access to online consumer credit. The heterogeneity analysis shows that access

to online consumer credit mainly promotes the consumption of younger households and house-

holds with lower income, no credit card and households resided in rural, middle, and western

area compared to their counterparts. This suggests that poorer households and households live

in less developed areas benefit more from the development of online consumer credit market.

In terms of consumption structure, access to online consumer credit reduces the proportion of

daily consumption (such as food, clothing, and daily necessities), while it increases the propor-

tion of long-term consumption (such as durables, education, entertainment, and luxuries), indi-

cating that the access to online consumer credit helps to change household consumption

structure, and thus improves consumer well-being.

The contribution of our pa per is two-fold. First, w e provide evidence on the ro le of

online consumer credit in im proving household welfa re. Using household-lev el data, this

paper directly inves tigates the associati on between access to o nline consumer credi t and

household consumpti on, and the instrumental v ariable method is employe d to alleviate the

potential endogene ity concern. Our study is more instructive com paring with literatur e

using credit card level dat a, because online consume r credit is more targeted at ordi nary

customers instead of i ndividuals with high n et worth. Second, we sh ow that poorer house-

holds and households l ive in less developed are as benefit more from the d evelopment of the

online consumer cred it consumer market. Thi s is related to the fact that f inancial inclusion

LI ET AL.1615