Wednesday, 23 February 2011

Why are Saving Rates so High in China?

This is an age old question that has been looked at many times before this time in a NBER paper (so it must be of a decent quality).

The simple answer is the lack of a welfare state leading to a lot of "rainy day" saving and also the importance of education where investment in an often single child can cost a relative fortune and needs to be saved for.

The Chinese are rapidly learning how to be good consumers and follow the West in wanting lots of useless trinkets, new clothes and gadgets. The saving rate is sure to fall over time as materialism kicks in.

"Why are Saving Rates so High in China?"
NBER Working Paper No. w16771

JUNSEN ZHANG, Chinese University of Hong Kong (CUHK) - Department of Economics, Institute for the Study of Labor (IZA)

SHAOJIE ZHOU, Tsinghua University

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 2000-2008. 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.


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