The disparities in Chinese urban and rural household savings rates

Abstract

This paper attempts to investigate the opposing trends in Chinese urban and rural household savings rates observed in the micro data during the period 1995-2013. Using the Chinese Household Income Project Survey (CHIPS) data, we find that the average urban household savings rate has consistently risen while the average rural household savings rate has gone the opposite direction during the same period. Using a variant of Deaton-Paxson decomposition analysis, we find that urban and rural households displayed vastly different life-cycle savings rate profiles. Results from the median regression and Oaxaca–Blinder decomposition suggest that the increasing urban savings rate can be explained by the continuously rising household income and increased precautionary savings for health shocks, whereas the shifts in household characteristics examined were not able to account for the decrease in rural household savings rate. The urban-rural savings disparities can be fully explained by the urban-rural income gap.