Chinese Savings Research Articles

Was Deng Xiaoping Right? A 40‐Year Assessment of China's Adoption of Western Capital Markets

In early 1992, Deng Xiaoping opened the way for China to experiment with and then adopt the Anglo‐Saxon style of development through capital markets. With the passage of nearly three decades, perhaps now is a good time to offer at least a preliminary assessment of how successful China's experiment with finance capitalism has proved.As part of this account of China's alternating embrace of and clampdown on Western‐style capitalism, the author constructs a rough financial balance sheet for China's state sector today that reflects a number of important developments and realities. First and foremost is the ad hoc fiscal system in which Beijing has for decades negotiated with local governments the amount of revenues to be turned over—in return for expected subsidies. The 1994 Budget Law was a compromise with the local governments aiming to codify the practice that Beijing would collect most of the revenues and share part of them with the poorer provinces. But although revenues increased dramatically, they failed to meet the local governments’ aspirations; and because such governments were left with less money and more social spending responsibilities, they ended up creating and relying on a “shadow” fiscal system—one in which the accumulating debts of the local governments do not show up in national income accounts.But China's entry into the WTO in 2001 changed the entire game. With foreign investment, which was the second critical factor, came related supply chains and an export sector that became the envy of the world. As a consequence of such investment, the principal forms of Chinese savings—corporate and household bank deposits—soared. During the first decade of this century, the country developed a middle class, the first in its history, comprising some 300 million Chinese. Helping to fuel all this activity and growth, stock markets both domestic and international generated tens of billions of U.S. dollars in capital for Chinese state‐owned enterprises.But then the global financial crisis hit, and China embarked on what has become its now decade‐long financial stimulus program, a program of social spending made possible and effectively funded by the household wealth stored by China's (largely state‐owned) banks. From a balance sheet perspective, the state's net worth has largely disappeared under a mountain of debt that had been extended overwhelmingly to parts of the state sector itself. And on the basis of the most recent available Chinese government data—whose endpoint is 2018—the author suggests that the value of China's state assets today may well be insufficient to meet its obligations to Chinese households—much of them in the form of deposits in (the mainly) state‐owned banks with arguably negative net worth.In sum, China's government, by introducing and then reversing many of its economic reforms, has sacrificed inefficiency and economic value to preserve what it values the most—control and social stability. The government's legitimacy rests on the support of Heaven's Mandate, an old saw the Chinese people continue to believe. But one thing has clearly changed over the past 30 years: any major loss of confidence in the party's management of limited capital resources would likely have serious consequences for China and the world.

The disparities in Chinese urban and rural household savings rates

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.

Research on the Abnormal Growth of Chinese Household Savings Under the Effect of “Negative Interest Rate”

At present, China has once again entered the era of negative interest rate, but China’s residents’ savings have shown a phenomenon of extraordinary growth. The coexistence of negative interest rate and high savings makes the effect of savings rate weaken the effect of monetary policy. This paper conducts an empirical quantitative analysis of the nominal interest rate, real interest rate and the growth rate of Chinese residents’ savings from 1978 to 2017, in order to and studies the influence and change relationship between the nominal interest rate and real interest rate on Chinese savings. The results show that the nominal interest rate and Chinese household savings change in the same direction, while the real interest rate changes in the opposite direction. In the long run, the sensitivity of both nominal and real interest rates to savings decreases and tends to be stable. It is concluded that savings are still the means of maintaining and increasing the value of the public residents when the inflation rate is relatively obvious. The author analyzes the reasons and disadvantages on this basis. Finally, it points out that we should stick to the general direction of interest rate liberalization reform, improve residents’ consumption ability, and deal with the negative interest rate effect with “Chinese characteristics” flexibly.

National savings rate and sectoral income distribution: An empirical look at China

China's saving rate is found to be higher than predictions of empirical estimations based on conventional models of consumption. This problem has been recently admitted as arising from research attention biased towards household saving, yet savings by the corporate and public sectors (termed the non-household sector) may be more important in China. We find strong evidence that the biased distribution of national income towards the non-household sector is a key determinant of high aggregate saving in China, with this situation reinforced by its huge surplus labor. Such a sectoral perspective, albeit useful for elucidating Chinese savings, was previously used in descriptive discussions. This perspective is formally taken into account in our empirical study generating significant findings. We also show that high Chinese savings have more or less to do with other economic, demographic, and institutional factors as identified in the literature.

The Chinese Saving Rate Between 1980 and 2011: Productivity, Demographics and Uncertainty

The Chinese saving rate doubles in the past decades. In this paper I use a overlapping generation model to generate the household saving rate in China during 1980 to 2011. The model considers TFP, fiscal policy, uncertainty, demographical change and social security to simulate the saving rate. The counterfactual experiment indicate TFP and uncertainty have a evident effect on saving rate.

China's New Role in the International Financial Architecture

The rise of China is challenging the international financial architecture in a number of ways. This paper highlights three that are of critical importance: the challenge of absorbing massive Chinese savings; the incorporation of China into a cohesive global financial safety net; and the organisation of China's participation in funding the demand for international investment projects. The global financial architecture needs to be reformed. But what role should China play? The paper defines the options open to China and the opportunities and barriers it will face. We argue that China can work with the established economic powers in reforming the existing architecture. At the same time, China seeks cooperation in building new institutions and organisations that fill gaps in the existing arrangements. But no matter how international financial diplomacy plays out in the near term, deep financial and economic reform at home will alone deliver China a central role in the international financial architecture. Domestic reform could also attend to some of the challenges that currently plague China's impact on the system. The success or failure of these domestic reforms will be at the crux of the strength or fragility of the international financial architecture in the years ahead.

Are the Chinese Saving for Old Age?

Worldwide, older people’s support used to be the adult children’s responsibility. In China, two generations after introducing the one-child policy in the late 70-ies, this becomes an increasingly demanding obligation. The Chinese government took the responsibility to mitigating old- age poverty risks and realized unprecedented progress in pension coverage. At the same time, the household savings increased to about 30 % of disposable income. Built on previous research on the politics of ageing, this study analyses households responses to the established governmental and firm pension programs as well as to the New Rural Pension Scheme (NRPS), introduced in 2009. The central question is: will participation in the established and new pension programs lead to higher current Chinese household expenditures and therefore to lower savings? The China Health and Retirement Longitudinal Study (CHARLS) dataset of 2011 offered the opportunity to study the influence of the recently introduced NRPS. We find that Chinese households with members between 45 and 60 years who expect future benefits of NRPS do not have higher expenditures than those not covered by NRPS. For the participants in the established, mostly urban pension programs a correlation was found with higher current expenditures (28 % more spending on basic needs, 80 % more on luxury) However, further analysis shows that this correlation cannot be interpreted as a causal relationship. This implies that coverage by pensions, be it in urban or rural programs, does not determine higher current expenditures and lower savings.

Chinese Saving Rates from 1953 to 2012: Trends, Compositions and Prospects

This study conducts a long-run analysis on the trends and components of Chinese saving rates from 1953 to 2012. We identify two structural changes in aggregate saving rates around 1978 and 2001, and examine them through a decomposition analysis of the income distribution and sector-specific saving rates. The following key findings are obtained. First, the major trends and compositions of Chinese saving rates changed markedly over the period considered, which explains the changes of aggregate saving rates with the dramatic economic transition from a planned economy to a market-oriented economy. Second, we investigate the surge in aggregate saving rates from 2001 to 2012 based on a series of institutional factors, such as the evolving labour market, domestic economic policy adjustments and changes in external economic conditions caused by China's accession to the World Trade Organization in 2001 and the 2008 global financial crisis. Finally, we present the future prospects for the high aggregate saving rates in China based on several evolving economic, demographic and policy trends. We argue that Chinese saving rates have peaked in recent years and that a declining trend is expected, which will contribute to the economic rebalancing of the country.

Global Imbalances

Abstract Purpose of the article The aim of the paper is to analyze the global economic imbalances and factors that contributed to their deterioration in developed and emerging countries, primarily in the United States and China. The article assesses the main inevitable factors of the global economic imbalances that have driven the recent evolution of current account balances. In addition, the paper describes the theoretical framework of global imbalances and the relevant fundamental theories for better understanding in theoretical aspect of international economics and finance. Furthermore, provides overview of the fundamental causes and drivers of global imbalances, namely current account. Methodology/methods In relation to the subject and purpose of this paper have been used the logical methods of examination which mainly include analysis, correlation and regression analysis, abstraction, synthesis, induction and deduction, the methods of descriptive and mathematical statistics, comparative and empirical methods and the selected forecasting methods (causal prognosis methods). Scientific aim The global imbalances are considered as the most disputable and well known of the global current economic problem, which possibly explain the causes of the global financial crisis. The global financial imbalances were quite massive even before the outbreak of the global financial crisis in 2008. Therefore, the main scientific goal of this paper to analyse what is behind the current account imbalances in both countries, e.i. the USA and China. Findings The persistent current account imbalances reflected the imbalances in the world investment and savings ratios. Whereas the U.S. national savings rate kept falling, the Chinese savings rate rose. Current account imbalances will keep on growing due to a problem of insufficient global saving. Conclusions (limits, implications etc)The size of global imbalances has become narrow compared to the prior crisis’s level, but it did not vanish due to the implementation of global rebalancing process. Putting the current account imbalance to cooperation of all participating countries is strongly necessary. The policy response will need to involve many more countries, even G20 process, and coordinating this response will require considerable efforts of every party members.

Housing price and household savings rates: evidence from China

This article investigates the effect of house prices on household savings rates in urban China employing the 2002 and 2007 data of the Chinese Households Income Project (CHIP). We find that the rapid appreciation of house prices cannot explain high Chinese households’ savings rates and the rising of Chinese savings rates. On the contrary, we find a negative relationship between house prices and household savings rates for home renters and homeowners. We do not find any evidence of ‘savings for housing purchase’ for young home renters when house prices increase. Their savings rates declined during housing market booms in recent 10 years. Savings rates of homeowners possessing multiple housing have decreased more because of ‘the pure housing wealth effects.’

Housing Prices and the High Chinese Saving Rate Puzzle

China’s over 25% aggregate household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices in China. However, cross-sectional data do not show a significant relationship between housing prices and household saving rates. This article uses a simple consumption-saving model to explain why rising housing prices per se cannot explain China’s high household saving rate. Although borrowing constraints and demographic changes can translate housing prices to the aggregate saving rate, quantitative simulations of our model using Chinese time-series data on household income, housing prices, and demographics indicate that rising mortgage costs can increase the aggregate saving rate by at most 2 to 4 percentage points in the best down-payment structure.

Do Chinese Really Save Too Much? Aspects from Total Factor Productivity Growth in China Since 1952

China’s economic growth over the past three decades is unprecedented. Although this growth is commonly attributed to a high domestic savings rate among “thrifty” Chinese, savings alone cannot promote economic growth unless productivity has continuously grown for such a long period. This article uses a one-sector, neoclassical growth model to calibrate the economy to Chinese data since 1952 and finds that measuring changes in total factor productivity between 1952 and 2005 can well capture the secular movements in the Chinese savings rate. Far from supporting the widespread belief that China’s savings rate is too high, this article argues that even thrifty Chinese “under-saved” for most of the years during this period; furthermore, the fiscal reforms of 1983 and 1985 further suppressed saving behavior, especially when initially implemented. In presenting such findings, this article at least partly solves the so-called “Chinese savings puzzle.”

A Stimulating Analysis of China Present—and Past

[ 210 ] asia policy A Stimulating Analysis of China Present—and Past Jonathan Fenby A review of Charles Horner Rising China and Its Postmodern Fate: Memories of Empire in a New Global Context Athens: University of Georgia Press, 2009 u 232 pp. Charles Horner has written an important and carefully argued book that suggests new ways of looking at China’s modern history and ends with a stimulating conclusion that “China” and the People’s Republic of China (PRC) are not the same thing. “The two never got along very well with each other,” he adds, stating that Mao Zedong waged “a brutal campaign” seeking the destruction of China, but that China “fought the PRC to a standstill and then went on to defeat it outright” (p. 198). I would argue for a rather more nuanced verdict. The PRC still seems to me quite powerful internally, and the Communist Party, if it has atrophied in some respects, has adapted in others, to quote the title of David Shambaugh’s excellent recent study on the subject.1 But Horner’s conclusion is the logical conclusion to a story that he starts with the Yuan Dynasty and that traces fascinating links between past and present. His parallel conclusion is that “rising China is not now, and will not be, the creation of only a handful of isolated politburo members in Beijing, but the result instead of the now always-changing give and take of life throughout the Chinese world” (p. 197). Again, I would offer a modification—the major economic decisions made at the central governmental level in the later part of 2008 show that the leadership remains important to shaping China, and the internal security straitjacket that envelops China and so provides an essential element in the character of today’s country is maintained from the top. Those points aside, the essential value of this book is that it makes one think again and again about what has constituted China over the centuries since the Yuan Dynasty and the implications for the 21st century. The overview of how the telling of that history has evolved, both in the West and in China, 1 David Shambaugh, China’s Communist Party: Atrophy and Adaptation (Berkeley: University of California Press, 2009). jonathan fenbyis author of The Penguin History of Modern China. He can be reached at . [ 211 ] book reviews is worth the price of the book alone, particularly when Horner draws a line linking the different views of the Ming naval expansion, for example, or explores the Taiping, or highlights the role of violence in history after 1800. His treatment of the multicultural, multiethnic nature of Qing rule—from its heights under the Qianlong emperor to its “negotiated fall”—expertly compresses recent historical re-evaluation. He brings out the complexity of that dynasty’s approach to ruling China as part of its much broader empire, and has telling passages on the way that the need for change was enunciated a couple of decades before the launch of the May Fourth Movement. The “conceptual legerdemain,” to use Horner’s phrase, of the Communist regime in transforming capitalism from a creed imposed by greedy foreigners into a system said to be rooted in Chinese history has been a considerable post1978 achievement. The role of capital has, indeed, been extremely important, due to the availability of a lake of Chinese savings (and, more recently, a flood of cheap loans from state banks). In that sense, China is more capitalist than the West, with wages playing a smaller role in the overall composition of GDP. But one must not forget that major factor inputs, such as land, labor, and capital markets, remain regulated by politically driven controls, as do the prices of such key inputs as electricity and water. Given imperial efforts at similar controls, it may be that today “China is China” once more, free from the imported constraints of Maoism-Marxism imposed from above after 1949. But there is no shortage of awkward questions that this book brings out, even if it cannot provide a complete answer to all of them; “Chineseness,” as the author notes, is an elusive concept. There is, to start with, the...

How Much Will China Save? Projecting China’s National Savings Through 2030

China’s high savings rate and low consumption rate have become a major concern of policy-makers in China, as well as in the rest of the world. This paper integrates China’s demographic and national account data with age and sex profiles of household consumption- and labor earnings to project China’s national savings through 2030. Our baseline projections show that China’s wealth in 2030 would be 28-fold of its wealth in 2008. A lower rate of wealth accumulation (say 12% instead of the projected average of 16%) would increase consumption by 46%. While this lowering of the savings rate could reduce China’s high trade surpluses, it comes at the expense of lower consumption for future generations - a justifiable action only if the revealed rate of time preference is actually lower than the true time preference rate of Chinese society. Perhaps, a better solution for China’s trade surpluses is to greatly increase the amount of imported physical and human capital goods, i.e. to hold more of its wealth inside China. The spillover of China’s savings to abroad could reflect more the failure of China’s dysfunctional financial markets to intermediate the savings into investments and less the irrationality of Chinese savings behavior.

Why are Saving Rates so High in China?

In this paper, we define The Chinese Saving Puzzle as the persistently high national saving rate at 34-53 percent of gross domestic product (GDP) in the past three decades and a surge in the saving rate by 11 percentage points from 2000-2008. Using data from the Flow of Funds Accounts (FFA) and Urban Household Surveys (UHS) supplemented by the findings from existing studies, we analyze the sources and causes of China's high and rising saving rates in the government, corporate, and household sectors. Although the causes of China's high saving are complex, we suggest that the evolving economic, demographic, and policy trends in the internal and external environments of the Chinese economy will likely lead to a decline in national saving in the foreseeable future.

Sentiment effects on Chinese share prices and savings deposits: The post-2003 experience

This paper examines the importance of sentiment effects on asset allocation decisions in mainland China and beyond. Rising stock market sentiment appears to have negatively and significantly impacted Chinese savings account growth over the 2003–2007 period. Investor sentiment also exerted consistently significant effects on the discounts attached to Chinese B-shares, H-shares and ADRs by foreign investors. Although the sample period is limited by availability of the sentiment data, the indicated effects remain most robust when controlling for relative stock market performance, liquidity levels, expected exchange rate movements, and such ‘indirect’ sentiment measures as market and firm-specific price-earnings ratios.

Sentiment Effects on Chinese Share Prices and Savings Deposits: The 2003-2007 Experience

This paper examines the importance of sentiment effects on asset allocation decisions in mainland China and beyond. Rising stock market sentiment is found to negatively and significantly impact Chinese savings deposit growth over the 2003-2007 period. Investor sentiment also exerted consistently significant effects on the discounts attached to Chinese B-shares, H-shares and ADRs by foreign investors. Although the sample period is limited by availability of the sentiment data, the indicated effects remain most robust when controlling for relative stock market performance, liquidity levels, expected exchange rate movements, and such 'indirect' sentiment measures as market and firm-specific price-earnings ratios.

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

China's per capita income ranks below 100th in the world. Its saving rate, however, has been one of the highest worldwide in recent decades. In this paper, we attempt to explain the seeming paradox within the framework of the Life-Cycle Hypothesis developed by Franco Modigliani. The key LCH variables are income and population growth. Our results based on data we put together from official sources show that income growth has been the dominant factor behind the dramatic increase in China's saving rate, as predicted by the LCH. Demographic structure and inflation also had significant impact on the fluctuations of the saving rate.