Partial Insurance and Aggregate Welfare in China: 1989 to 2009

We construct a panel data of income and consumption of Chinese households from 1989 to 2009 from the publicly available China Health and Nutrition Survey (CHNS). We use the Nutrition Survey from the CHNS, that has a detailed account of the dietary information at the household level, to construct a value of diet. We show that the annual value of diet, net the value of food coupons, the value of home grown food and the value of food gifts a household received over a year, matches the aggregate statistics of household expenditure on food closely by province, urban status and year. With this measure of food consumption as the major non-durable consumption component, we are able to capture 60% to 70% of the typical household consumption basket in China. Together with the income measures surveyed in the CHNS, we form a panel and estimate a partial insurance model from the panel. Our estimation results suggest that the rural and urban households in China face very different income processes; the urban households can better insure against the permanent income shocks while the rural households do better at the transitory income shocks. Over the twenty years' period, the less educated urban households suffered most notably a worsening of the ability to insure against income risks.