Why are Saving Rates of Urban Households in China Rising?
International Monetary Fund (IMF) - Research Department
Eswar S. Prasad
Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 3191
Brookings Global Economy and Development Paper No. 31
From 1995 to 2005, the average urban household saving rate in China rose by 7 percentage points, to about one quarter of disposable income. We use household-level data to explain why households are postponing consumption despite rapid income growth. Tracing cohorts over time indicates a virtual absence of consumption smoothing over the life cycle. Saving rates have increased across all demographic groups although the age profile of savings has an unusual pattern in recent years, with younger and older households having relatively high saving rates. We argue that these patterns are best explained by the rising private burden of expenditures on housing, education, and health care. These effects and precautionary motives may have been amplified by financial underdevelopment, as reflected in constraints on borrowing against future income and low returns on financial assets.
Number of Pages in PDF File: 51
Keywords: China, China's economy, financial markets, savings rates, global economics, economic development
JEL Classification: D12, E21, O16
Date posted: December 3, 2007