The Law of One Price in Chinese Factor Markets

The 1995 China Household Income Project Survey asked households to specify the “monthly cost of” their “minimum standard of living”. This paper attempts to understand the determinants of self-reported minimum standards. Those standards are, perhaps appropriately, generally lower than current household income. Not surprisingly, they are sensitive to measures of household consumption demands, such as household demographics and characteristics of dwelling units. They are also dependent on current income, though the sensitivity of that dependency is remarkably low. In contrast, self-reported minimum standards are very sensitive to a complex set of positional and inequality measures. This suggests that these standards are heavily dependent on inter-household comparisons within counties, provinces and the country, rather than solely on absolute consumption requirements.