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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. (Edited by Zhinan Zhang)

Suggested Citation

  • Xinhua He & Yongfu Cao, 2007. "Understanding High Saving Rate in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 15(1), pages 1-13, January.
    • Handle: RePEc:bla:chinae:v:15:y:2007:i:1:p:1-13
    DOI: 10.1111/j.1749-124X.2007.00049.x
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    References listed on IDEAS

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    1. Kuijs, Louis, 2005. "Investment and saving in China," Policy Research Working Paper Series 3633, The World Bank.
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    Cited by:

    1. John Knight & Wei Wang, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," The World Economy, Wiley Blackwell, vol. 34(9), pages 1476-1506, September.
    2. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
    3. repec:spo:wpmain:info:hdl:2441/6741 is not listed on IDEAS
    4. Banerjee, Abhijit & Qian, Nancy & Meng, Xin & Porzio, Tommaso, 2014. "Aggregate Fertility and Household Savings: A General Equilibrium Analysis using Micro Data," CEPR Discussion Papers 9935, C.E.P.R. Discussion Papers.
    5. Wang, Xin & Wen, Yi, 2012. "Housing prices and the high Chinese saving rate puzzle," China Economic Review, Elsevier, vol. 23(2), pages 265-283.
    6. Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2012. "Why Are Saving Rates So High in China?," NBER Chapters, in: Capitalizing China, pages 249-278, National Bureau of Economic Research, Inc.
    7. Guonan Ma & Haiwen Zhou, 2009. "China's Large and Rising Net Foreign Asset Position," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(5), pages 1-21, September.
    8. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "The intergenerational content of social spending : health care and sustainable growth in China," Sciences Po Economics Publications (main) hal-00972963, HAL.
    9. Riccardo Fiorentini, 2011. "Global Imbalances, the International Crisis and the Role of the Dollar," Working Papers 18/2011, University of Verona, Department of Economics.
    10. Gu, Xinhua & Tam, Pui Sun & Li, Guoqiang & Zhao, Qingbin, 2020. "An alternative explanation for high saving in China: Rising inequality," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1082-1094.
    11. Maria N. Ivanova, 2017. "Profit growth in boom and bust: the Great Recession and the Great Depression in comparative perspective," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 1-20.
    12. Sin-Yu Ho & Bernard Njindan Iyke, 2018. "Finance-growth-poverty nexus: a re-assessment of the trickle-down hypothesis in China," Economic Change and Restructuring, Springer, vol. 51(3), pages 221-247, August.
    13. Xin Wang & Yi Wen, 2011. "Can rising housing prices explain China’s high household saving rate?," Review, Federal Reserve Bank of St. Louis, vol. 93(Mar), pages 67-88.
    14. John Knight & Wei Wang, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," The World Economy, Wiley Blackwell, vol. 34(9), pages 1476-1506, September.
    15. Tsai Chang-hsien, 2011. "International Jurisdictional Competition under Globalization: From the U.S. Regulation of Foreign Private Issuers to Taiwan's Restrictions on Outward Investment in Mainland China," Asian Journal of Law and Economics, De Gruyter, vol. 2(1), pages 102-102, April.
    16. Chang, Xiao & An, Tongliang & Tam, Pui Sun & Gu, Xinhua, 2020. "National savings rate and sectoral income distribution: An empirical look at China," China Economic Review, Elsevier, vol. 61(C).
    17. Xie, Shiqing & Mo, Taiping, 2015. "Differences in corporate saving rates in China: Ownership, monopoly, and financial development," China Economic Review, Elsevier, vol. 33(C), pages 25-34.
    18. Darong Dai, 2014. "A Golden Formula in Neoclassical-Growth Models with Brownian-Motion Shocks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 211-228, May.
    19. Simon Wong, Chak Keung & Gladys Liu, Fung Ching, 2011. "A study of pre-trip use of travel guidebooks by leisure travelers," Tourism Management, Elsevier, vol. 32(3), pages 616-628.
    20. Benner, Maximilian, 2010. "Exportinduziertes Wachstum als Chance für die „nächsten Tiger“? [Export-led growth as a chance for the “next tigers”?]," MPRA Paper 40744, University Library of Munich, Germany.
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    22. Sebastian Dullien, 2009. "Central Banking, Financial Institutions And Credit Creation In Developing Countries," UNCTAD Discussion Papers 193, United Nations Conference on Trade and Development.
    23. Jianwei Xu & Panpan Yang & Guangrong Ma, 2021. "Why Has China's Current Account Balance Converged after the Global Financial Crisis?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(1), pages 109-129, January.
    24. Luciano Fanti & Luca Gori, 2010. "Family Policies And The Optimal Population Growth Rate: Closed And Small Open Economies," Metroeconomica, Wiley Blackwell, vol. 61(1), pages 96-123, February.
    25. Ricardo Molero Simarro, 2011. "Functional Distribution of Income and Economic Growth in the Chinese Economy, 1978-2007," Working Papers 168, Department of Economics, SOAS University of London, UK.

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