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Household Finance in China

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  • Russell Cooper
  • Guozhong Zhu

Abstract

This paper uses a lifecycle model to study household finance in China, focusing on the high savings rate, the low stock market participation rate and the low share of stocks in wealth. We control for important regime changes in China in the estimation of structural parameters, and examine their impacts on household finance patterns. Relative to the US, the distinctive financial choices of households in China are driven by institutional factors, such as labor market risks and costs of asset market participation, as well as by differences in preferences. Specifically, large stock market participation and adjustment costs along with high stock market volatility in China lead to the relatively low stock market participation rate and the low share of stocks in wealth conditional on participation, but they contribute little to the high savings rate. The high savings rate in China is driven mainly by high labor market risks and the patience of households. Given the estimated differences between China and the US in preferences, the model predicts that households in China would continue to save more than their US counterparts even if institutional differences disappear.

Suggested Citation

  • Russell Cooper & Guozhong Zhu, 2017. "Household Finance in China," NBER Working Papers 23741, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23741
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    References listed on IDEAS

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    Cited by:

    1. Yang, Xintong & Gan, Li, 2020. "Bequest motive, household portfolio choice, and wealth inequality in urban China," China Economic Review, Elsevier, vol. 60(C).
    2. repec:zbw:bofitp:2018_001 is not listed on IDEAS
    3. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China’s financial system," BOFIT Discussion Papers 1/2018, Bank of Finland, Institute for Economies in Transition.
    4. Carlos Garriga & Aaron Hedlund & Yang Tang & Ping Wang, 2023. "Rural-Urban Migration, Structural Transformation, and Housing Markets in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 413-440, April.
    5. Xinxin Ma, 2022. "Medical Insurances and Financial Portfolio Choice," Springer Books, in: Public Medical Insurance Reforms in China, chapter 0, pages 193-215, Springer.
    6. Lu, Xiaomeng & Guo, Jiaojiao & Gan, Li, 2020. "International comparison of household asset allocation: Micro-evidence from cross-country comparisons," Emerging Markets Review, Elsevier, vol. 43(C).
    7. Dong, Feng & Liu, Jianfeng & Xu, Zhiwei & Zhao, Bo, 2021. "Flight to housing in China," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    8. Wei Yang & Peng Yang & Huaiwang Shi & Weizeng Sun, 2022. "Mobile Payment Application and Rural Household Consumption—Evidence from China Household Finance Survey," Sustainability, MDPI, vol. 15(1), pages 1-18, December.
    9. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China's financial system," BOFIT Discussion Papers 1/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    10. Xinxin Ma, 2022. "Social Insurances and Risky Financial Market Participation: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(10), pages 2957-2975, August.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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