Why are Saving Rates of Urban Households in China Rising?

51 Pages Posted: 3 Dec 2007  

Marcos Chamon

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; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 2008

Abstract

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.

Keywords: China, China's economy, financial markets, savings rates, global economics, economic development

JEL Classification: D12, E21, O16

Suggested Citation

Chamon, Marcos and Prasad, Eswar S., Why are Saving Rates of Urban Households in China Rising? (December 2008). IZA Discussion Paper No. 3191; Brookings Global Economy and Development Paper No. 31. Available at SSRN: https://ssrn.com/abstract=1049181

Marcos Chamon

International Monetary Fund (IMF) - Research Department ( email )

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Washington, DC 20431
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202-623-5867 (Phone)

Eswar S. Prasad (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

440 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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Brookings Institution ( email )

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NBER ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
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