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Households' savings in China

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  • Riccardo Cristadoro

    ()
    (Bank of Italy)

  • Daniela Marconi

    ()
    (Bank of Italy)

Abstract

This paper studies the determinants of Chinese households’ saving. Domestic saving in China is the highest in the world in terms of GDP and it is mirrored in a large and persistent current account surplus. First, we show that notwithstanding the rising contribution of government and firms to national savings, they stand out because of households’ behaviour. Our econometric analysis proceeds from the work of Modigliani and Cao (2004) that explained rising personal saving in China within the life-cycle hypothesis. We prove that their explanation is insufficient. Then, using panel data and exploiting differences among provinces and between urban and rural households, we show that there is a significant dissimilarity in savings decisions in urban and rural areas and that motives other than those envisaged in the life-cycle model might play a major role, above all precautionary savings and liquidity constraints. Our results suggest that to reduce the propensity to save of Chinese households it is necessary to improve the provision of social services and to facilitate access to credit.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 838.

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Date of creation: Nov 2011
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Handle: RePEc:bdi:wptemi:td_838_11

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Keywords: China; saving rate; precautionary savings;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Understanding Chinese household savings
    by Economic Logician in Economic Logic on 2012-02-16 14:53:00
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Cited by:
  1. Dreger, Christian & Wang, Tongsan & Zhang, Yanqun, 2013. "Understanding Chinese consumption: The impact of hukou," Discussion Papers 343, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.

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