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    Direction: Read the given passage carefully and answer the questions that follow. Certain words are printed in bold to help you locate them while answering some of these.

    China’s economic boom over the last 40 years helped create today’s Chinese middle class. Estimates of the size of China’s middle class vary, depending on the definition. China’s statistics agency puts the figure at nearly 400 million, less than a third of the population, by defining a middle-class household as one making 25,000 yuan (US$3,640) to 250,000 (US$36,400) yuan a year – a fairly low threshold. But in a 2015 report, investment banking company narrowed it to 109 million Chinese with the wealth of between US$50,000 and US$500,000 – a relatively high standard. Whatever the measure, it is clear that China’s middle class is large in absolute terms but still relatively small as a share of China’s 1.4 billion people.
    China has created a large, relatively affluent group of citizens –the country now had the world’s largest “middle-income group”, bigger than the entire population of the US. Per capita wealth has risen from US$156 in 1978 to nearly US$10,000 today, and the government now expects consumer spending to lead economic growth in the future. The rising wealth of Chinese has already created the biggest market in the world for many multinational companies.
    An economist examined Chinese income and spending data over the last two decades and found there were two issues behind weaker consumer spending. Household income fell back to 50 per cent of the nation’s overall income from a level of about two-thirds of the total in 2000, as more taxes and fees were collected and household earnings increased at a slower pace than government revenue. He also found that the marginal propensity to consume among China’s urban residents – that is, their willingness to spend on discretionary items – has remained low in recent years due to rising household debt, much of it for housing, and an underdeveloped social welfare system that prompts consumers to save more for medical and old age expenses. The problem was the slow progress on necessary economic reforms so that the government can lower middle-class taxes. In addition to a tax regime, China has other institutional arrangements – including a state monopoly on land – that drive wealth distribution in favour of the state rather than the middle class. Growth in retail sales, a quasi-barometer of consumer spending, has slowed to the lowest level in 15 years. An economic slowdown, along with headwinds from a trade war with the US, has further dampened consumer confidence, prompting the middle class to become even more cautious in its spending. There is now a heated debate about whether Chinese consumers are in the midst of a “consumption downgrade”.This question is of particular importance given that the government wants and expects stronger consumer spending to take up much of the economic slack produced by the trade war.
    After urban wage-earners complained loudly about the country’s excessive personal income taxes, Beijing cut personal taxes marginally – the first cut in seven years – by raising the monthly minimum taxable income threshold to 5,000 yuan from the previous 3,500 yuan, but stopped well short of calls for a higher threshold. Beijing also partly stepped back from its plan to sharply increase collection of social tax payments by small and medium-sized businesses, an initiative that many owners of Chinese factories and workshops fear would have put them out of business. The government told local authorities not to collect unpaid taxes from previous years but did not specifically scale back its intention to collect more social taxes.

    Which of the following is true with respect to China’s Consumption downgrade?

    Options :-

    1. The mere belief in a consumption downgrade may cultivate ever more thrifty spending habits, creating an even higher saving rate and debt issues.
    2. Some long-standing issues in China’s economy, like soaring property and rental prices, are strong factors causing Chinese people to perceive a decrease in their disposable income.
    3. Household budgets are under pressure, spending is being reduced and prices have become a decisive factor are eagerly pointing to evidence of consumption downgrading.
    4. The so-called consumption downgrade serves to remind us to focus on consumption.
    5. “Consumption downgrade” generally means an increase in the proportion of total consumption spending going to essentials such as food or a shift from high-quality products to lower-quality ones.
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