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Households' savings in China

Author

Listed:
  • 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.

Suggested Citation

  • Riccardo Cristadoro & Daniela Marconi, 2011. "Households' savings in China," Temi di discussione (Economic working papers) 838, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_838_11
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    References listed on IDEAS

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    1. Understanding Chinese household savings
      by Economic Logician in Economic Logic on 2012-02-16 20:53:00

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    More about this item

    Keywords

    China; saving rate; precautionary savings;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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