The retail industry has been ignored by the government of the People's Republic of China for decades prior to the economic reform. Resources were rationed and consumption was not encouraged. In 1978, the economic reform in China embarked on a process of reforming its centrally planned economy to a market economy. Many new forms of commercial activities have been introduced such as supermarket, wholesale club, convenient store, discount warehouse, hypermarket and many more. With higher income and more product varieties, the consumers are getting acquainted with the idea of consumerism and their willingness to consume is high. Consequently, the retail industry has been growing at a tremendous rate and becoming an indispensable sector of the economy post economic reform. Despite the growth potential of retail industry, it has undergone a cyclical growth pattern. The retail industry experienced its initial boom during the early 1980's followed by a decline around 1987. The did not pick up its growth until 1991 and it has been developing at an enormous rate as of 1996.; It is the aim of this study to address the questions of why the retail industry experienced a decline in its development around 1987 and resumed its growth after 1991. This is a pioneer study of its kind to examine the provincial, regional and time-regional effects of income on consumption behavior and retail climate. Also, valuable case studies on state-owned Chinese supermarket companies were presented to provide first hand information on the retail market conditions in China as of 1996.; The issues of interests in this study were addressed in four perspectives. First, a historical account of the economic conditions in China was presented to provide the basis for accessing the changes in the retail industry after the economic reform. Second, an empirical analysis on the consumption behavior and retail climate was performed taking into account the provincial, time, regional, and time-regional effects. The dynamics of the consumption behavior and the retail climate before and after 1989 was addressed. Third, a descriptive analysis on the characteristics of the consumption behavior and the retail climate, the government policies, the commercial centers and the foreign investments was presented to provide an insight on the variables that can not be quantified. Fourth, case studies on supermarket companies in Shanghai and Xiamen were compiled to substantiate the research findings with the actual market conditions.
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