Household Saving in China

Abstract

China, in recent years the world's largest and fastest growing economy, also has national saving rates that are among the highest in the world. This article considers a variety of statistical issues that cloud the measurement of aggregate and household saving in China. It also provides new empirical evidence on the importance of intertemporal considerations in explaining the variation in household saving across China's provinces. Given China's size and its high saving rates, it is not surprising that in recent year's considerable theoretical and empirical effort has been devoted to understanding its saving behavior. This research can be divided into two broad strands. The first emphasizes the relevance for China of traditional equilibrium theories of saving, ranging from simple Keynesian consumption/saving functions to variants of the life-cycle and permanent-income hypotheses. The second argues that equilibrium theories of saving are unlikely to be relevant in an economy in transition from plan to market. Instead, disequilibrium factors, especially shortages and rationing in goods and credit markets, explain China's saving experience. More broadly, China's saving rate remains unusually high relative to international experience, even after controlling for some of the determinants of saving.