Why Are Saving Rates so High in China?

Abstract

In this paper, we define "The Chinese Saving Puzzle" as the persistently high national saving rate at 34-53 percent of gross domestic product (GDP) in the past three decades and a surge in the saving rate by 11 percentage points from [2000][2001][2002][2003][2004][2005][2006][2007][2008]. Using data from the Flow of Funds Accounts (FFA) and Urban Household Surveys (UHS) supplemented by the findings from existing studies, we analyze the sources and causes of China's high and rising saving rates in the government, corporate, and household sectors. Although the causes of China's high saving are complex, we suggest that the evolving economic, demographic, and policy trends in the internal and external environments of the Chinese economy will likely lead to a decline in national saving in the foreseeable future.

Political uncertainty and household savings

“…When real income increased by 13.7% in 1991, there was a further increase in the saving rate, to 13.0%. 19 This pattern is consistent with the aggregate urban household saving rates reported in Yang, Zhang and Zhou (2011), derived from the UHS data for six provinces and municipalities including Sichuan. …”

Optimal Exchange Rate Policy in a Growing Semi-Open Economy

“…Other factors can explain high saving in China (e.g., see Yang et al, 2011), such as education or the gender imbalance, but adding these factors would not change the main results of our analysis.…”

From internal imbalances to global imbalances: a survey on the causes of China’s export-led growth

“…Blanchard and Giavazzi, 2006;Qi and Prime, 2009;Baldacci et al, 2010;Barnett and Brooks, 2010;OECD, 2010). Higher government consumption is found to have a positive impact on consumption via three channels: First, through its direct effect; second, through its mediating effect on households precautionary saving (Qi and Prime, 2009;Barnett and Brooks, 2010); and third, through income redistribution to low income households, due to their higher propensity to consume (Baldacci et al, 2010;Yang et al, 2011;Yang 2012). …”

“…These include, amongst others, subsidies and the tax system favouring exports (e.g. Yu, 2007;Yang et al, 2011;Defever and Riaño, 2012 However, there is substantial evidence that, as Aziz and Cui (2007, p. 29) conclude, "improving the distribution of national income between profit and household income appears to be a quantitatively important factor" when it comes to rebalancing the Chinese economy away from its reliance on investment and net exports towards greater contributions of private consumption to overall output growth.…”