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Understanding High Saving Rate in China

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  • Xinhua He
  • Yongfu Cao

Abstract

This paper presents a detailed analysis of the Chinese saving rate based on the flow of funds data. It finds that the most widely adopted view of precautionary saving, which is regarded as the top reason for maintaining a high saving rate in China, is misleading because this conclusion is drawn from the household survey data. In fact, the household saving rate has declined dramatically since the mid-1990s, as is observed from the flow of funds framework. The high national saving rate is attributed to the increasing shares of both government and corporation disposable incomes. Insufficient consumption demand is caused by the persistent decrease in percentage share of household to national disposable income. Government- directed income redistribution urgently needs to be improved to accelerate consumption, which in turn would make the Chinese economy less investment-led and help to reduce the current account surplus. Copyright The official journal of The Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS) 2007.

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Bibliographic Info

Article provided by Institute of World Economics and Politics, Chinese Academy of Social Sciences in its journal China & World Economy.

Volume (Year): 15 (2007)
Issue (Month): 1 ()
Pages: 1-13

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Handle: RePEc:bla:chinae:v:15:y:2007:i:1:p:1-13

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Cited by:
  1. Xin Wang & Yi Wen, 2010. "Can rising housing prices explain China’s high household saving rate?," Working Papers 2010-048, Federal Reserve Bank of St. Louis.
  2. Knight, John & Wang, Wei, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," BOFIT Discussion Papers 15/2011, Bank of Finland, Institute for Economies in Transition.
  3. Shang-Jin Wei & Xiaobo Zhang, 2009. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," NBER Working Papers 15093, National Bureau of Economic Research, Inc.
  4. Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2010. "Why are Saving Rates so High in China?," Working Papers 312010, Hong Kong Institute for Monetary Research.

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