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China's high saving rate: myth and reality

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  • Guonan Ma
  • Wang Yi

Abstract

The saving rate of China is high from many perspectives - historical experience, international standards and the predictions of economic models. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s, so that the aggregate marginal propensity to save exceeds 50%. What really sets China apart from the rest of the world is that the rising aggregate saving has reflected high savings rates in all three sectors - corporate, household and government. Moreover, adjusting for inflation alters interpretations of the time path of the propensity to save in the three sectors. Our evidence casts doubt on the proposition that distortions and subsidies account for China's rising corporate profits and high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewis-model transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. While such structural factors suggest that the Chinese saving rate will peak in the medium term, policies for job creation and a stronger social safety net would assist the transition to more balanced domestic demand.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 312.

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Length: 31 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:bis:biswps:312

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Keywords: corporate; household and government saving; Chinese economy;

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  1. Feng, Jin & He, Lixin & Sato, Hiroshi, 2009. "Public pension and household saving: Evidence from China," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 2/2009, Bank of Finland, Institute for Economies in Transition.
  2. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," CESifo Working Paper Series, CESifo Group Munich 2587, CESifo Group Munich.
  3. Kjetil Storesletten & Fabrizio Zilibotti & Zheng Song, 2009. "Growing like China," 2009 Meeting Papers, Society for Economic Dynamics 912, Society for Economic Dynamics.
  4. Jha, Shikha & Prasad, Eswar & Terada-Hagiwara, Akiko, 2009. "Saving in Asia: Issues for Rebalancing Growth," ADB Economics Working Paper Series, Asian Development Bank 162, Asian Development Bank.
  5. Richard Herd & Hu-Wei Hu & Vincent Koen, 2010. "Providing Greater Old-Age Security in China," OECD Economics Department Working Papers, OECD Publishing 750, OECD Publishing.
  6. Felix Salditt & Peter Whiteford & Willem Adema, 2007. "Pension Reform in China: Progress and Prospects," OECD Social, Employment and Migration Working Papers, OECD Publishing 53, OECD Publishing.
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