Why is saving rate high in China

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Why is saving rate high in China?

• Made by Xiao Li

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Introduction

• Along with the fast growth of the Chinese
  economy, more and more economists, either
  domestic or abroad, are paying attention to the
  persistent high Chinese saving rate.
• A widely adopted perspective is that Chinas high
  saving rate is attributed to the undeveloped
  financial market and cultural background. That
  is, Chinese residents are used to saving, and
  Chinese households lack diversified investment
  opportunities.
• However, others believe that the high Chinese
  saving rate is attributed to the imperfect social
  security system, housing demand after the housing
  system reform, unaffordable rise in educational
  expenditure and uncertainty of future incomes.

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Table of Chinese saving
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Reasons

• It depends on the Chinese history, Chinese
  Culture and Chinese characteristic market
  structures. Since 1978, Deng xiaoping started to
  reform economics in China. All the contributions
  and state enterprises need investment to operate.
  Government encourage people to save more in
  banks. So the government had money to invest.
  Foreign investment was little portion.

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Continue

• An important reason why ordinary people are
  unwilling to consume lies in the unsound social
  security system---Central Bank governor Zhou
  Xiaochuan
• He pointed out that the flaws of the social
  security system will be eliminated through future
  efforts, and the Chinese Government should
  accelerate the process of reforming the systems
  of retirement pension, medical care and
  education. Thus China can reduce preventive
  savings of its people and the proportion of
  savings in GDP will drop to a normal level.

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Effects and Solutions
with the exception of a few years since the late
1980s, the savings rate of China has been higher
than the investment rate, while imports and
exports maintain a surplus. This means that
through the nations favorable balance of trade,
the surplus savings of China has supported
investment of other countries. High saving
rates caused high investment, low consumption,
but the investment or bank loans can not be used
efficiently. Now, Chinese government want to
lower the high saving rates, they encourage
people to spend more. But the deposit is still
45 of GDP.
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continue

• China national situation is special. Although the
  overall saving rate remains high, most people are
  still worried about their future retirement
  pension, education fee for their children, and
  expense of medical services and housing.
  Therefore, China's saving rate is unlikely to
  fall at the present stage and will stay at a high
  level in the next 10 to 20 years.

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Others factors

• Chinese consumer goods price is rising. People
  spend more on consumer goods than before.
• The housing cost rises rapidly. People have to
  save more money to offer their houses and their
  childs house.
• Money spend more on bonds, stocks and insurance.
• Appreciate Renminbi (not a good way to solve this
  problem)

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Conclusions

• First, when the high Chinese saving rate is
  reduced, people like to put money on higher risky
  investment, for example, buying stocks in stock
  market.
• Second, Chinese government need to establish an
  advance security system, like providing
  reasonable retirement plan, medical care and
  control education fee and housing cost.

Third, the increase in the proportion of
enterprises and governments disposable income
in the national disposable income makes it
possible for high investment, while the
expansionary fiscal policy provoked the
enthusiasm of enterprises investment.
Fourth, in order to get rid of the Chinese
economy from a situation of insufficient
consumption, it is necessary for the government
to play a more important role in
income redistribution.
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Con.

• Finally, most of household savings have been put
  into banks and the majority of external financing
  of enterprises comes from bank loans.
• These make the banking system face more and more
  risks. In order to avoid future financial crisis
  and meet the diversified investment needs of
  households, the reform in the financing sector
  must be speeded up, and the indirect financing of
  enterprises must be reduced further.